Turkey is used to double digit house price growth rates. Since the Central Bank of Turkey started producing its house price index in 2010, growth rates have almost always been in double digits, and rising. But economic growth has slowed from 8 per cent plus to around 2 per cent. Chart of the week takes a look at what is driving the market.
There’s no doubt that Turkey’s real estate is on the up. Turkey ranked in the top 10 fastest growing markets in the latest global house price index by Knight Frank. Turkey also ranks second by Ernst and Young in the most attractive property markets in Europe; and the Jones Lang LaSalle survey of European supply chain managers reveals Turkey at the top of markets expected to be the next emerging logistics location. Finally, Istanbul ranks first in the latest PwC Emerging Trends in Real Estate Europe 2013 survey for expected investment in the property market.
Various factors play in the dynamism of the Turkish real estate market.
Alp Sen, Senior Manager Transaction Advisory Services of Ernst & Young, suggested to beyondbrics many reasons for the strong house prices growth in Turkey, spanning from the favourable demographic dynamics of a young and growing population, the growth of income and of tourism, to the lack of suitable housing, offices and shopping centres. Orhan Vatandas, lead data analyst in the Istanbul office at Reidin, the real estate information company focusing on emerging markets, also pointed to the growing foreign investment to the domestic real estate market.
And the growth of house prices is accompanied by a strong growth of domestic cement sales, indicating rising demand in the real estate sector, as the chart above shows.
The government plans to demolish and rebuild approximately 6.5m units of the housing stock within 20 years as part of an urban regeneration plan as 40 per cent of buildings in Turkey are shanty towns, and 67 per cent lack a settlement permit.
But the government is not alone in investing in properties. A law passed in August 2012 made it possible for individuals from 183 countries – up from 89 previously – to purchase real estate in Turkey. China is now one of the permitted nationalities.
According to data from the Environment of Urban Planning Ministry, 14,600 foreign buyers purchased 13,500 Turkish properties Between May 2012 and May 2013, with Russian and UK buyers ranking as the top foreign customers. The southern coastal province of Mersin was most popular with foreign buyers, and was followed by the Aegean province of Izmir.
Retail and office real estate is also growing fast. As of end-2012, new retail space expected to be completed by the end of 2015 was 2.7m sqm across 73 shopping centres. The same optimism is shared in the office market, with an increasing number of multinational firms establishing offices in Istanbul.
The government is also undertaking a series of infrastructure major projects such as the construction of the third Bosphorus Bridge and the building of an artificial canal to connect the Sea of Marmara to the Black Sea. A new airport for Istanbul is planned as well. All are likely to help the real estate market to continue growing. Istanbul is also a candidate for the Olympics in 2020.
Although Turkey’s economy slowed down this year, it is still forecast by the IMF to have the fastest rate among emerging central and eastern European countries after Latvia in 2013.
But high inflation remains a concern, and the recent protests against the government and the consequent slowdown in the discussion for the Turkish EU membership are possible threats to the real estate market. Liam Bailey, Global Head of Residential Research at Knight Frank said that “It is unlikely that very strong growth rates will continue for an extended period. The longer term challenges to growth remain, and political stability is needed so that investors and owners feel confident that this is a stable country for the future.”
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