Issued building permits in Turkey down 41% y/y in Jan-Sept

Issued building permits in Turkey down 41% y/y in Jan-Sept
By Akin Nazli in Belgrade November 20, 2018

The number of building construction permits granted in Turkey declined by 41% y/y to 77,004 in January-September from 131,408 a year ago, statistics institute TUIK said on November 20.

The figures demonstrate how the downturn in the country, for which the construction sector was previously the main driver of economic growth, has gathered pace.

The floor area linked to construction permits awarded by municipalities decreased by 55% y/y to 106mn square metres in the first nine months of the year while the total estimated value of the buildings decreased by 45% y/y to TRY140bn.

The number of dwelling units authorised under construction permits declined by 59% y/y to 485,356 in the first nine months.

TUIK said on October 23 that annual growth in the construction cost index reached 33.36% in August from 27.01% in July. The index rose 16.18% in December and across the first eight months of 2018 increased at an escalating pace. It can be anticipated that construction costs will recover from the peak seen in August thanks to the Turkish lira’s rebound from its record lows.

In H1, the decline in the construction permits was relatively limited, at 28% y/y for the number of buildings and 42% y/y in terms of floor area, and at 28% y/y for estimated value and 46% y/y for the number of dwellings. The third quarter evidently proved far rougher than the first six months.

Earlier this month, the Treasury devised a rescue plan that would allow construction and real estate companies to offload unsold stock to a state-backed fund.

There are a total of 1.5mn-2mn unsold homes in Turkey, according to sector representatives.

On November 16, state-owned Ziraat Bankasi said in a bourse filing that it had mandated UniCredit Bank AG to issue up to $1.5bn worth of mortgage-backed bonds abroad. It also said that it would issue up to $1bn (TRY5.43bn) worth of identical papers domestically without a public offering.

Weighted average interest rates (WAIR) on lira-denominated mortgage loans declined to 28.4% as of November 9 from 29.05% as of November 2, according to the latest data obtained from the central bank. The rate stood as high as 29.28% as of October 26, at 13.14% at the end of June and at 14.96% at the end of March.

Total mortgage loans declined to TRY180.3bn as of November 9 from TRY180.7bn as of November 2. They stood as high as TRY188.4bn as of July 13.

Banks' loan volume falling
The total loan volume of the Turkish banking industry fell to TRY2.346tn as of November 9 from TRY2.35tn as of November 2 while consumer loans declined to TRY407bn from TRY408bn.

Total loan volume stood as high as TRY2.59tn at end-August, including TRY420bn of consumer loans.

Exposure to the construction and energy sectors and high borrower concentrations were also significant sources of risk for many Turkish banks, Fitch Ratings said on October 1 when it downgraded the Long-Term Foreign-Currency Issuer Default Ratings (LTFC IDRs) of 20 Turkish banks and their subsidiaries.

Annual home price growth in Turkey edged up from 9.86% in August to 10.48% in September, however the gap between the price growth and inflation reached 14.04pp from 8.04pp in August, central bank data showed on November 16.

Turkey’s annual consumer price inflation rate moved up to 25.24% in October from 24.52% in September, the TUIK announced on November 5.

Turkey’s economic confidence index fell further by 5% m/m to 67.5 in October, the lowest level seen since January 2009, TUIK said on October 31

Consumer sentiment souring
The consumer sentiment index fell by another 3% m/m to 57.3 in October, marking the lowest level seen since December 2008, data released by TUIK showed on October 23.

The seasonally-adjusted construction confidence index recovered by 2.3% m/m to 58.7 in October after hitting a record low level of 57.3 in September.

The all-time high for construction permits in Turkey was set in 2017 thanks to the government’s stimulation efforts to boost GDP growth. The floor area of permits was up 36% y/y to 280mn sqm last year.

In January-September, home sales declined by 3% y/y to 1mn units, with mortgage sales down 29% y/y to 256,283 contracts, TUIK reported on October 19.

The construction industry grew by 0.8% y/y in Q2, the lowest growth rate registered since Q1 2015, after growing 6.6% y/y in the first quarter, according to the latest GDP data. The sector grew by 9% y/y in 2017.