Housing demand rises but Turkey struggles with tight supply
Demand for housing in Turkey continues to grow, but supply still lags, keeping property prices high and scaring away buyers.
Strong demand is being driven by individual buyers and investors, who are trying to take advantage of the strength in the housing market, as well as population growth. But limited inventory has pushed up prices as residents struggle to find affordable homes to rent or buy.
Add to that the fact that building permits remain low despite rebounding slightly from a decline in 2019, as builders grapple with shortages and higher prices for inputs.
Yet residential property sales have increased despite high borrowing costs and soaring prices. The demand for housing in Turkey is said to have reached 800,000 units per year, against a supply that hovers around 550,000.
Industry players cite soaring costs, land prices and fluctuations in the economy as the main reasons for the drop in real estate production.
Despite high demand for new building permits ahead of 2019, Nazmi Durbakayım, the head of the Istanbul Builders Association (INDER), pointed to a sharp decline over the past three years.
“Applications for building permits, which fell to 319,000 in 2019, rose to 550,000 in 2020 and 710,000 in 2021. The number of apartments granted a permit reached 1.58 million over the three years, while the required number of production units totaled 2.4 million,” said Durbakayım.
“Supply is far behind demand.”
Soaring house prices and rents have sounded the alarm so far this year. The government has pledged to act, in addition to several measures it announced earlier this month to deal with soaring property prices.
Turkey’s Residential Property Price Index (RPPI), measuring changes in quality-adjusted house prices, jumped 110% annually in March in nominal terms, official data showed.
The index made an annual jump of 96.4% in February. The increase was 77.5% in January and 59.7% in December. Almost a year ago, the index’s annual increase was 32%.
This surge comes against a backdrop of rising inflation, which hit a 20-year high of almost 70% in April, propelled by rising energy and commodity prices.
The construction index climbed 102% year-on-year in March, according to data from the Turkish Statistical Institute (TurkStat).
Home sales in Turkey rose nearly 40% year-on-year in April to 133,058 units, despite high borrowing costs and soaring prices as households continue to consider real estate as an attractive investment tool to hedge against inflation.
January-April sales rose 26.2% to 453,121 homes.
Under the program announced by President Recep Tayyip Erdoğan earlier this month, cheaper home loans will be provided to those who convert their foreign currency savings into Turkish lira or sell their gold to the central bank.
Ankara has called on individuals and businesses to convert their foreign currency savings into lira to support the currency and in December unveiled a program to increase lira deposits by protecting them against exchange rate volatility.
Erdoğan said the home loan measure would support that effort, reversing a trend of dollarization that has been going on for years.
Loans will also be granted to construction companies to complete certain projects if they undertake to keep sales prices unchanged for a year.
Erdoğan said the loan program for construction companies aims to increase the supply of housing, thereby bringing prices back into equilibrium.
Durbakayım said that the interest burden of people in need of housing has been reduced thanks to the alternative support program, which he says will facilitate access to houses.
Ege Yapı Chairman Inanç Kabadayı highlighted the imbalance between supply and demand that has arisen with the coronavirus pandemic.
Kabadayı said the new packages would be a significant incentive for real estate production.
“With such measures taken to stabilize this imbalance as soon as possible, the supply will increase rapidly. In addition, encouraging the start-up of new projects with profitable loans will also increase the production of new housing,” he added.