Politics

Turkey’s Property Market Maintains a Stable Forecast in Spite of Skyrocketing Costs



House prices in Turkey have risen sharply since the onset of the pandemic, “breaking into the rarefied three-digit threshold” with nominal growth at 110% in the year to March, the highest of any country, according to Knight Frank’s Global House Price Index for the first quarter. Istanbul saw even greater nominal growth at 122%.

Compared to the average house-price growth rate of 10.2% across 56 countries and territories in the year to March, Turkey is an outlier, leading the index by a substantial margin. Soaring inflation makes the numbers a little more complicated to interpret, however, and the real figure for house-price growth was 30% in the year to March, when consumer price inflation sat at 69.9%, according to Knight Frank’s data. 

“It depends on the type of property and on the location, of course, but in almost every region of Turkey we see that price growth is accelerating,” said Elena Milishenkova, commercial director of international real estate brokerage Tranio. In U.S. dollar terms, “it’s up 70% year-on-year” in some areas of the country, she added. “I don’t know any other country where we can see such price growth.” 

Despite skyrocketing prices, analysts said there is little risk of a housing bubble in Turkey. Soaring inflation is pushing Turkish citizens to invest in property as an inflation hedge, with luxury properties in particularly high demand. The country’s Consumer Price Index increased 73.5% year-on-year to May, according to official figures from the Turkish Statistical Institute, orTurkStat, meaning that even high-priced properties remain a comparatively good deal. 

Demand in Turkey is set to remain strong, both from local buyers looking for a safe investment against inflation and overseas clients interested in Turkey’s golden visa program, which offers Turkish citizenship through property purchases. The ongoing interest in Turkish residences, especially high-end homes, is likely to fuel the market for years to come. 

More: Despite a Blazing U.S. Housing Market, There Are Still Perks to Be Found to Selling Via Auction

An Expensive–but Essential–Hedge Against Inflation

“House investments and even second-hand car transactions are significantly increasing because it doesn’t make sense to keep your investment in the bank in Turkey,” said Zeynep Konca, head of valuation and advisory services at CBRE. “Investors right now are not looking for a house to live in, they are investing because of the high inflation.”

Residential property is widely seen as a safe investment because although Turkish law states that all property sales must be recorded in Turkish lira, house prices are unofficially tied to the U.S. dollar, “Everybody in Turkey, including the developer and the buyer, always thinks in U.S. dollar prices, so the high inflation on the Turkish lira doesn’t directly affect the price,” she said.

Overall residential property sales in Turkey rose nearly 40% year-over-year in April, reaching an all-time monthly high, according to data from TurkStat. Foreign buyers are increasingly interested in Turkey’s red-hot market but “domestic demand has been the key driver of price-growth acceleration in 2022,” Ms. Milishenkova said. “Peak sales of residential property were recorded in December 2021, when sales almost doubled compared to the average monthly figures. Supply chain issues caused by the pandemic, along with soaring construction costs, have pushed home prices ever higher in dollar terms and lead to a shortage of supply and a slower rate of new construction, particularly in Istanbul. “After the pandemic, [new construction] significantly dropped,” Ms. Konca said. Construction costs in Turkey “increased significantly, even more than if we compare them to Europe or the U.S.,” she added, “so the problem is with the supply chain but it’s also economic.” 

The shortage of supply has pushed prices for new builds higher than average. In the five years to April 2022, overall residential property prices per square meter across Turkey rose by 127% and in Istanbul by 142%, according to data from Turkey’s central bank. The price growth for new builds was 131% across Turkey and 157% in Istanbul.

Due to the high demand for investment properties, the luxury market has also seen accelerated price growth. “Luxury properties have undergone a more significant price increase than midrange, and midrange has undergone a faster price increase than low-end,” said Ms. Milishenkova. “There is also demand for expensive apartments in Istanbul from the people who want to get citizenship in Turkey.”


A Stable Forecast for Demand

In June, the Turkish government raised the threshold for foreign buyers seeking Turkish citizenship by investment from US$250,000 to US$400,000. After a rush to purchase before the deadline, Ms. Milishenkova said that sales might temporarily dip but that there is still an appetite for the scheme, particularly from buyers in Russia, Iran and Iraq. Those who can’t meet the new threshold may still purchase properties at a lower price in order to secure a residence permit, she added. “For some people that’s also important and they will buy anyway.”

Sales to foreign buyers rose 58% year-over-year to April, according to data from TurkStat. Russians topped the list of foreign buyers for the first time ever, boosting their purchases by 187% year-over-year. Ukrainians fleeing the war are also seeking refuge in Turkey, with an 186% increase in sales to Ukrainian buyers year-on-year in April. But despite a strong uptick in foreign buyers, the overall ratio of foreign to domestic buyers remains modest, Ms. Milishenkova said. 

Despite the unusual speed of house-price growth, particularly in Istanbul, she said that there was little risk of a bubble. “There are no consistent signs of overall property overvaluation in Istanbul’s main districts nor in the popular resorts at the Anatolian coast,” she said, adding that supply shortages continue to bolster price growth. “Property value in the secondary market is backed by stable rental demand both in Istanbul and Antalya. The former is associated with a growing population, while the latter is boosted by tourism recovery and increased remote working.”

More: Rising Rents and Population Shifts Sustain the Edge for Sellers in U.S. Cities

While rising prices are pushing low-income and first-time buyers out of the market, investors buying property as an inflation hedge are largely cash buyers. “Another important symptom of a market bubble is high mortgage debt against low household income,” she said. “Yet the Turkish property market is characterized by low leverage, with only some 20% of homebuyers using housing loans. The typical 50% down payment required for most mortgage loans reduces the risks of attracting unreliable borrowers and creating a market bubble.” 

“I think the market will stay strong because of the construction costs but also the land price, because the stock is very limited,” Ms. Konca said. “Construction costs are in line with the U.S. dollar because most of the materials are imported.” Measuring price growth in U.S. dollar terms, “it will not increase that significantly. It will be stable on the U.S.-dollar-per-square-meter price next year but if we convert it to Turkish lira, it’s always going to increase,” she added.

But interest from foreign investors is set to continue even as price growth is predicted to slow in dollar terms. “I think Turkey will become more attractive for foreign property buyers because we see positive trends in the Turkish economy,” said Ms. Milishenkova. “GDP is rising and many companies want to work with Turkish companies and the property market is always driven by the economy.”

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