Real Estate Industry
The country’s nationwide house price index soared by 15.01% during the year to Q1 2020, according to the Central Bank of the Republic of Turkey (CBRT), a sharp acceleration from y-o-y increases of 9.93% in Q4 2019, 6.62% in Q3, 1.74% in Q2 and 3.2% in Q1. However, in real terms, the house price growth is far more modest, at 2.82% during the year to Q1 2020, due to persistently high inflation in the country. Yet this remains the first y-o-y growth in real prices since Q1 2017.
On a quarterly basis, nationwide house prices increased 5.6% in Q1 2020 (3.24% inflation-adjusted).
The price index for new dwellings rose by 18.77% during the year to Q1 2020 (6.18% inflation-adjusted), according to CBRT, while the price index for existing dwelling increased 14.25% (2.13% inflation-adjusted).
In Turkey’s major cities:
- In Istanbul, Turkey’s largest city, nominal house prices rose by 11.71% during the year to Q1 2020. But when adjusted for inflation, house prices were actually down slightly by 0.14% y-o-y.
- In Ankara, the country’s capital, house prices rose by 14.85% y-o-y in Q1 2020 (2.67% inflation-adjusted).
- In Izmir, the country’s third largest city, house prices went up by 16.36% y-o-y in Q1 2020 (4.02% inflation-adjusted).
Istanbul has Turkey’s most expensive housing, with an average house price of TRY 5,221 (US$ 765) per square metre (sq. m.) in Q1 2020, according to the CBRT. Nationwide, the average house price was TRY 3,104 (US$ 455) per sq. m.
Demand has partly been buoyed by a surge in foreign buyers. In the first four months of 2020, the total number of home sales in Turkey rose by 8.9% to 383,821 units from the same period last year, following declines of 1.9% in 2019 and 2.4% in 2018, according to Turkish Statistical Institute (TurkStat).
For foreigners, the currency’s devaluation means that the property market is very attractively priced, luring many buyers from the Gulf. In 2019, foreign home purchases rose by almost 15% to 45,967 units from a year earlier, following strong growth of 78.5% in 2018 and 22% in 2017.
In the first quarter of 2020, Turkey’s economy expanded by 4.5% from a year earlier, following y-o-y growth of 6% in Q4 2019 and 1% in Q3, according to TurkStat. Despite this, the economy is projected to contract by 5% this year, according to the International Monetary Fund (IMF), due to the lockdowns and travel restrictions imposed since reporting its first COVID-19 case in March 10, 2020.
In 2019, Turkey’s economic growth slowed sharply to 0.9% from a year earlier, following expansions of 2.8% in 2018, and 7.5% in 2017, mainly due to weak lira, high borrowing costs and global economic uncertainty.
Istanbul’s streets and shops are full of Gulf tourists – and they are buying property
Foreign buyers are now buying large amounts of Turkish property, mirroring the substantial increase in Gulf tourism. As the Lira has fallen visitors have been attracted to Turkey and Istanbul is now so full of Arab visitors that it resembles a Gulf city, with Arabic spoken in shops, and restaurants catering to Gulf tastes.
In 2019, foreign home purchases rose by almost 15% to 45,967 units from a year earlier, following strong growth of 78.5% in 2018 and 22% in 2017, according to Turkish Statistical Institute (TurkStat). Irans and Iraqis accounted for almost one-third of the total foreign purchases last year.
“Iranians regard Turkey as an important and safe haven, “They also feel culturally close to the country.”
Most foreign buyers bought dwellings in Istanbul, accounting for 45.9% of the total sales in 2019, followed by Antalya (19.7%), Ankara (5.6%) and Bursa (4.9%).
The strong growth in the number of property sales to foreign buyers in recent years was mainly due to robust tourism.
However, this year is unusual because of the COVID-19 pandemic, with tourism and travel all over the world grinding to a halt. As expected, foreign home purchases in the first four months of 2020 fell by 12% y-o-y to 11,864 transactions, based on TurkStat figures. But the continued decline in Turkish lira’s value against the US Dollar is expected to help encourage more foreign purchases of real estate during the remainder of the year.
Foreign homeownership rules eased
It was only in 2002 that the Turkish property market was first opened to foreign buyers. But they were only allowed to purchase properties in a few zones, and under the “reciprocity clause” only nationals of countries allowing Turkish citizens reciprocal rights – like Britain, Germany and the Netherlands – were allowed to buy properties. In 2005, the zones were abolished, but reciprocity remained.
The reciprocity requirement was abolished in August 2012, and since then nationals from 183 countries have been allowed to buy properties in Turkey. Nationals of China, Russia, India and of Gulf Arab states, previously banned because of the reciprocity rules, are now allowed. The size of land foreigners can buy without special permission was increased to 33 hectares, up from 2.5 hectares.
Tens of thousands of foreigners have successfully acquired properties in Turkey, most notably in the Marmara and Mediterranean regions, Turkey’s major finance and tourist hubs..
Turkey has granted citizenship to foreigners through various means since January 2017, which includes purchasing property worth at least US$ 1 million. New regulations were introduced in September 2018 cutting the investment amount required for Turkish citizenship:
- Purchasing real estate worth at least US$ 250,000 now gives you citizenship.
- Or a fixed capital investment of US$ 500,000
- Or keeping at least US$ 500,000 in a Turkish bank account for a minimum of three years, down from the earlier cap of US$ 3 million;
- Or generating 50 jobs, down from 100 jobs.
Demand is rising
Surprisingly, the total number of home sales in Turkey rose by 8.9% to 383,821 units in the first four months of 2020 from the same period last year, following declines of 1.9% in 2019 and 2.4% in 2018, according to Turkish Statistical Institute (TurkStat).
In the first four months of 2020:
- In Istanbul, which has an 18.2% share of transactions, home sales rose by 8.8% y-o-y to 69,872 units.
- In Ankara, which accounted for a market share of 11%, the number of home sales surged 24.3% y-o-y to 42,224 units.
- In Izmir, which represented 6.4% of the market, home sales soared 21.3% y-o-y to 24,545 units.
- In Antalya, which captured 5.1% share, the number of home sales rose by 12.5% y-o-y to 19,633 units.
- In Bursa, which took 3.7% of the market, home sales increased slightly by 1.3% y-o-y to 14,109 units.
Istanbul’s rental yields
Gross rental yields in Istanbul are between 4-5%. Some new growing centres mainly in Asian part of Istanbul hitting 5% yield. Istanbul Finance Centre is promising high rental yield even more than 5%.
Mortgage loans rising again, interest rates falling gradually
After a quick pause in 2018, Turkey’s residential mortgage market is expanding again. In the first quarter of 2020, outstanding housing loans rose strongly by 13.8% to TRY 195.27 billion (US$ 28.66 billion) from a year earlier, following a 5.9% growth in 2019, based on figures from the Central Bank of the Republic of Turkey (CBRT).
One of the main reasons is falling interest rates. In April 2020, the weighted average interest rate for housing loans stood at 11.49%, down from 19.35% a year earlier and 14.92% two years ago.
Over the past twelve years, housing loans in Turkey have increased from about TRY 12.4 billion (US$ 1.82 billion) in 2005 to TRY 178.4 billion (US$ 26.19 billion) in 2017, or by an average of almost 26% annually from 2006 to 2017.
As a result, the size of the residential mortgage market grew from just 1.84% of GDP in 2005 to 5.7% of GDP in 2017. Yet it contracted back to 4.7% of GDP in 2018 and to 4.4% of GDP in 2019.
Turkey’s economy to contract this year
In the first quarter of 2020, Turkey’s economy expanded by 4.5% from a year earlier, following y-o-y growth of 6% in Q4 2019 and 1% in Q3 and annual declines of 1.6% in Q2 and 2.3% in Q1, according to TurkStat.
During the year to Q1 2020:
- Household consumption rose 5.1%, a slowdown from the previous quarter’s 6.8% growth
- Fixed investment fell 1.4%, following a contraction of 0.6% in the previous quarter
- Government spending grew 6.2%, after expanding 2.7% in the prior quarter
- Exports dropped 1% while imports jumped 22.1%
However, the economy is estimated to have contracted sharply in Q2 2020, mainly due to the lockdowns and travel restrictions imposed since reporting its first COVID-19 case in March 10, 2020. The World Bank expects the Turkish economy to contract by 3.8% in 2020, but the IMF released more pessimistic figures, projecting a 5% decline this year.
In 2019, Turkey’s economic growth slowed sharply to 0.9% from a year earlier, following expansions of 2.8% in 2018, 7.5% in 2017, 3.2% in 2016, 6.1% in 2015, 5.2% in 2014 and 8.5% in 2013, according to the International Monetary Fund (IMF). The sharp economic slowdown was mainly due to “the weaker lira, higher borrowing costs, and elevated uncertainties weigh on investment and demand,” the IMF noted.
Turkey’s inflation remains stubbornly high, mainly due to the continuous weakness of the Turkish lira (TRY). In May 2020, annual inflation stood at 11.39%, slightly up from 10.94% in the previous month but sharply down from 18.71% a year earlier, according to TurkStat. Inflation was 15.2% in 2019, from 16.3% in 2018 and 11.1% in 2017, according to the IMF.
Unemployment dropped to 13.2% in March 2020, from 13.6% in the previous month and 14.1% a year earlier, according to TurkStat.
- Residential Property Price Index (RPPI) (2017=100)(Monthly)(Central Bank of the Republic of Turkey):https://evds2.tcmb.gov.tr/index.php?/evds/serieMarket/collapse_26/5949/DataGroup/english/bie_hkfe/
- House Sales Statistics (Turkish Statistical Institute): http://www.turkstat.gov.tr/PreTablo.do?alt_id=1056
- Property sales in Turkey up 33% in Q1 as sales with mortgages boom (Daily Sabah):https://www.dailysabah.com/business/economy/property-sales-in-turkey-up-33-in-q1-as-sales-with-mortgages-boom
- Iranians lead foreign purchases of Turkish homes in Q1 (Daily Sabah): https://www.dailysabah.com/business/economy/iranians-lead-foreign-purchases-of-turkish-homes-in-q1
- Tourism Statistics (Turkish Statistical Institute): http://www.turkstat.gov.tr/PreTablo.do?alt_id=1072
- Building Permits Statistics (Turkish Statistical Institute): http://www.turkstat.gov.tr/PreTablo.do?alt_id=1055
- Building Permits, January-March, 2020 (Turkish Statistical Institute): http://www.turkstat.gov.tr/PreHaberBultenleri.do?id=33780
- Turkey enacts law introducing new taxes and amending various tax laws (EY Tax Insights): https://taxinsights.ey.com/archive/archive-news/turkey-enacts-law-introducing-new-taxes-and-amending.aspx
- Turkey’s new tax measures Tax bulletin – 2019/14 (PWC): https://www.pwc.com.tr/en/hizmetlerimiz/vergi/bultenler/2019/turkey-s-new-tax-measures.html
- Turkey amends Luxury Housing Tax provisions (EY Tax Insights): https://taxnews.ey.com/news/2020-0423-turkey-amends-luxury-housing-tax-provisions
- Turkey: Valuable Housing Tax Has Been Postponed To 2021 (Mondaq): https://www.mondaq.com/turkey/property-taxes/901578/valuable-housing-tax-has-been-postponed-to-2021
- World Economic Outlook Database, April 2020 (International Monetary Fund): https://www.imf.org/external/pubs/ft/weo/2020/01/weodata/index.aspx
- Weighted Average Interest Rates For Banks’ Loans (Central Bank of the Republic of Turkey): https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Statistics/Interest+Rate+Statistics/Weighted+Average+Interest+Rates+For+Banks+Loans/
- Monthly Money and Banking Statistics(Central Bank of the Republic of Turkey):https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Statistics/Monetary+and+Financial+Statistics/Monthly+Money+and+Banking+Statistics/
- Istanbul now much less expensive in dollar terms (Global Property Guide): https://www.globalpropertyguide.com/Europe/Turkey/Rental-Yields
- Consumer Prices (Central Bank of the Republic of Turkey): https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Statistics/Inflation+Data
- Labor Force Statistics(Turkish Statistical Institute): http://www.turkstat.gov.tr/PreTablo.do?alt_id=1007
- Turkey´s current account deficit at 10-year-low (A News): http://www.anews.com.tr/economy/2019/02/14/turkeys-current-account-deficit-at-10-year-low
- Turkey’s lira hits its lowest level ever amid investor fears over sinking economy (CNBC): https://www.cnbc.com/2020/05/06/turkeys-lira-rips-toward-all-time-low-after-regulator-moves-to-stop-currency-speculation.html