Why did the Real Estate Market Prices Increase in 2022 in Turkey?
Buyers, sellers, and tenants should brace themselves for further challenges, as high mortgage rates, lower interest rates and persistent increase in inflation. The real estate (villas, apartments, houses etc.) prices have been continuously increasing in dollars by almost %100 percent compared to 2020. Not only because of the increase in the cost of construction materials and labor, but also the high demand by locals along with foreign investors and the mortgage campaigns in 2020 have all together touched the prices in real estate market. Mortgage rates in Turkey have recently surpassed 20%, the fourth highest in the world, with a debt which is more than double the amount that borrowers paid two years ago.
Since 2018, Turkey has faced an economic crisis that has had a tremendous impact on the financial habits of people, making it increasingly difficult to save, invest or spend. So, what did happen in Turkey? What did increase the real estate market prices in Turkey? Let’s see the major factors that affected the real estate market prices in turkey in 2022 as well as the previous years and analyze what will happen to real estate market prices in turkey in 2023 and further?
Mortgage Campaigns in Turkey
The First Campaign (%7,68) – June 2020
In June 2020, in an effort to avert an economic fallout from the coronavirus pandemic – President Erdogan unveiled mortgage loan packages at historically low-interest rates, leading to a surge in home sales in Turkey as deferred demand was put back into motion. This was followed by initiatives from the private sector, such as the housing campaign launched by real estate company Emlak Konut GYO with an offer of a year of nonpayment, further stimulating the market. The deal was simple, buy a property from a developer with %10 down-payment – %90 installments in 15-year-period and start paying your first installment a year after. The demand was incredibly high, everybody was happy, people were buying their first or new homes and developers were selling their units in a short time at good prices. It really stimulated the market a lot. The only problem was the fact that the average prices in the market were increased with this effect. The ones who missed the opportunity lacking paying attention or resources to afford buying were not happy at all.
The Second Campaign (%11.88) – May 2022
After about 2 years, President Erdogan has implemented the same strategies again to promote the acquisition of real estate by supplying access to loans with low interest rates. The mortgage loan interest rates in Turkey back then were between 18.5 and 24 percent per annum. The new initiatives have brought down the interest rate to 11.88 percent each year for first-time buyers. After a cabinet meeting, Erdogan commented, “Global increase in raw materials and supply shortages have decreased activity in the construction sector, resulting in a sharp rise in prices. In order to avert our citizens from the effects of this volatility, we have decided to implement a set of measures.” The campaign involved three different packages for the first-time buyers. The ones who benefitted from the previous campaign along with the newcomers enjoyed that one as well. The aim was to help people buy a property with cheap money by loan. The same problem occurred again; the prices have shifted from bank’s pockets to developers’ pockets, but the payment was actually the same by the buyer. It only helped the developers to sell their units at higher prices. The resale market has also renewed their faces with new higher prices.
Commercial and Consumer Loans (TL) Weighted Average Interest Rates
Cost of Construction
The construction industry has been negatively affected by the pandemic, causing delays and a shortage of workers. These delays have led to a backlog of ongoing projects, which will delay the start of future projects. Additionally, the cost of construction materials has been impacted by the pandemic’s inflation, which is largely due to supply chain disruptions at international factories that produce materials such as steel and stone used in the construction industry. Even though most of the countries including United States, United Kingdom, Canada, and European countries as well get affected by it, especially Turkey’s industry is heavily dependent on imported materials from abroad. It is expected that construction costs will continue to rise until labor and material costs stabilize and there are no more supply chain disruptions. We’ll share some examples of cost increase in materials.
- The exterior paint – The price has increased approximately by 50% in May 2022 compared to the previous year.
- Concrete pipe and prestressed concrete products – the prices have increased 21.0% and 29.9% respectively in July 2022 compared to the previous year.
- Steel – steel price was increased by roughly %120 in January 2022 compared to the previous year. In 2022, there were some decreases around -10%, -4% and -2% yet the price is still double of what it was in January 2021.
The Inflation Effect along with FX-Rate Protected Deposit
On 10th of December in 2021, the Treasury and Finance Ministry unveiled the details about the deposit protection scheme meant to stabilize the currency crisis with the high dollarization in Turkey. According to the scheme, the investor benefits from the high interest rates on their Turkish lira deposits in the system at the same time any lose or gain in the Turkish lira against other currencies will be reflected on the deposit which means the depreciation of Turkish lira does not affect the deposits. This system partially worked in the country which it actually held the depreciation of Turkish lira. Year-to-date loss of Turkish lira is around %34 whilst the inflation rate is declared as %76 as of the end of November. This means that an apartment that is worth 10.000.000 TL was 740.000$ in the beginning of the year. With the inflation effect, the same apartment is worth 17.600.000 TL right now, but it is 946.000$. The basic math shows us that the FX-Rate protected deposit scheme led the housing prices to increase in dollars as well.
How about 2023? Will this trend continue in 2023?
We mentioned about 3 basic reasons on why the housing prices have increased in Turkey for the last 2 years. Let’s look at those reasons in 2023 and what we expect to change in them.
Mortgage Campaign
The country elections will occur in June 2023 in Turkey which always bring up the new campaigns in real estate. A new mortgage campaign is expected to be revealed by the government before the elections.
Cost of construction
The global inflation trend and the recession expectation in the world, will definitely fluctuate the cost of raw materials in the construction business. When you consider the shortage in those raw materials, the effect will be multiplied on the prices.
Inflation and the FX-Rate Protected Deposit
A presidential decree published in official gazette extending the deadline for opening new FX-Rate protected deposits accounts to Dec. 31, 2023. This basically means that, a year after from now on we might end up seeing a similar scenario in terms of inflation in the country and depreciation in Turkish lira resulting in the price increase in the real estate market in dollars.
References:
https://www.nytimes.com/2022/11/04/realestate/housing-market-interest-rates.html
https://www.numbeo.com/cost-of-living/country_price_rankings?itemId=106
https://www.middleeasteye.net/news/turkey-housing-cheap-loan-scheme-prices-soar-further