BRICKS & MORTAR: As Turkish house sales slump, has a bubble just burst?

By bne IntelliNews August 29, 2014

David O'Byrne in Istanbul -


Turkish house sales slumped by 20% in July – the largest monthly fall since the Eurozone crisis in 2009 hit Turkish exports to Europe, sending shockwaves through the whole Turkish economy. However, analysts warn it is still too early to say the fall signals the bursting of a long-alleged "property bubble" in Turkey, citing seasonal factors that could have dampened demand and pointing to other one-off factors that might suppress demand in the future.

According to figures released by Turkey's state statistical office TUIK, in July 85,101 properties were sold, a fall of 20.2% on the 106,643 sold in July last year.

With the summer months normally recording the highest number of property sales in Turkey, and coming on the back of several years of increasing sales, such a fall would under normal circumstance provoke cries of "bubble bursting". However analysts are cautioning that while there are some unexplained factors contributing to the fall, it is still too early to suggest that the trend will continue.

Holiday effect

According to Inan Demir, chief economist at Turkey's Finansbank, a large part of the drop can be accounted for by a combination of the Muslim holiday of Ramadan falling in July and the build-up to Turkey's presidential election on August 10. "Ramadan holidays tend to suppress sales for longer than the few days the holiday lasts, and this year we have the added effect of elections undermining market confidence and making consumers hold back from big ticket purchases," he says.

Pointing out that there have been year-on-year falls in house sales every month this year since February, with an overall decline in sales of 7.8% over the first half of the year, Demir suggests that it will only be with the publication next month of sales data for August that the picture will become clearer. August figures, he suggests, may serve to remove any temporary effects of Ramadan and elections, and also clarify the situation regarding interest rates, which directly affect mortgage sales.

Sales of houses funded by mortgages during July accounted for 30,912 sales, 36% of the total, which was down 33% on July 2013. This again should indicate that the steep rise in interest rates at the start of the year has had a strong effect on demand. Indeed, this appear to part of a continuing trend that began with a 12.4% fall in mortgage sales in January and peaked in April when mortgage sales fell by 42.5%. However, Demir points out that during 2012 when interest rates were higher, housing sales were still rising.

According to Demir, the main puzzle in the house sales data is that despite falling sales, prices remain relatively constant and overall since 2010 have risen faster than rents. "Normally you expect year-on-year sales drops to bring prices down, as owners have to reduce prices to sell," he says, cautioning that with Turkish house price data only available from 2010, there is insufficient data to draw longer-term conclusions on the state of the market.

Certainly, if data published this week by TUIK on construction permits is anything to go by, the Turkish construction sector still has a very positive view of the market.

Those figures show that over the first six months of this year, the floor area of buildings given construction permits increased by 35.8% over the same period in 2013, reaching 112.6m square metres (sqm). Of this, 63.8m sqm was for residential buildings, with the number of residential units receiving permits rising by 27.5% from 412,346 over the first six months of 2013 to 525,520 over the first half of this year, and compared with 375,229 for the first six months of 2012 – a further sign that if there is a bubble, it probably has some way to go before bursting.

Construction permits though are not a reliable indicator of future market trends, argues Kerim Gokoz, real estate analyst at Istanbul brokerage Garanti Yatirim, as it is never very clear, even in a buoyant market, what percentage of projects with permits will actually be developed.

He points out that following changes in VAT rates, the level of VAT charged on new house sales accords to when the construction permit was issued. With some exceptions, property from most projects that received permits before the end of 2012 attract VAT at just 1%, whereas those from most projects receiving permits from January 2013 onwards attract VAT at 18%.

With virtually all projects currently on the market having received permits before 2013, the effect of the VAT increase has yet to register on market prices. "When those projects receiving permits later and having to charge VAT at 18% reach the market, then this will negatively affect sales," says Gokoz.

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