Improved political stability helped lift August property sales in Turkey, while the government is looking to infrastructure investments to stave off a downturn in the overheated construction sector. A glut of empty residential properties and high interest rates had curbed growth in property sales in recent times.
The month’s house sales of 105,624 represented a 25% increase year-on-year (y-o-y), with a 12% rise in homes sold with a mortgage in the same period, according to a Turkish Statistics Institute (TurkStat) report released at the end of September.
However it has been a sluggish few months for the residential and construction sectors. Property sales were down 20% y-o-y in July to 85,101 unit sales, according to TurkStat data. The figure fell 8% month-on-month, and sales over a three-month period were some 40,000 below the same period in 2013.
The level of unsold property on the market – some estimates put the number of vacant residential units at 1.5m across the country, with up to 400,000 in Istanbul – has created a bottleneck. As demand tails off, developers may hold back new projects until existing stock is shifted. Indeed, fewer construction permits were issued in the first half with less area being developed and new-build developers now less likely to apply for residential use. The drop is most marked in the number of residential units under construction, down 14.9% in the first half y-o-y, said TurkStat.
High interest rates have been blamed for much of the downturn. While the central bank hiked its rates sharply in January to shore up the weakening lira, it immediately came under fire from the government to bring rates back down. Since then, the central bank has trimmed its benchmark rate several times, with the latest cut in July taking the lending rate down from 8.75% to 8.25%.
The bank left the lending rate unchanged in September due to concerns over high inflation, which came in at 9.54% in August, and which it described as one of the main reasons behind the Turkish lira weakening in September to its lowest level since February.
The performance of the construction sector has closely tracked the growth of the overall economy for the past decade, amplifying its peaks and troughs by putting up very strong numbers during good years and shrinking during bad years. The latest figures show that Turkey's economy grew less than expected in the second quarter, with GDP expanding 2.1% y-o-y in the second quarter.
The Turkish public, however, is more confident in the outlook. General expectations that the economy would improve over the coming 12 months rose by 1.5 points in August, taking the index to 99.8 points and closer to a positive outlook, according to TurkStat’s latest consumer confidence data. This comes despite a slight dip in sentiment in August over the previous month.
The industry itself also has expectations of an upturn, with TurkStat’s seasonally adjusted construction sector confidence index rising in both August and September, posting its highest gains since the beginning of the year.
Some of this confidence comes from hopes for an upturn in the economy, thanks to improved political stability. Municipal elections in March saw the ruling Justice and Development Party (AKP) retain control of the majority of cities and the party’s popularity was re-affirmed as the party’s leader Prime Minister Recep Tayyip Erdogan swept to victory in August, becoming the country’s first directly elected president. An AKP victory in next year’s parliamentary election would serve to further boost confidence in the construction sector, given the government’s commitment to housing development.
Investments in large infrastructure projects by the public sector as well as the private sector, either on the build-own-operate (BOO) or build-operate-transfer (BOT) models, are likely to provide a buffer against any easing in the residential market.
Deputy Prime Minister Ali Babacan said in June that up to $700bn worth of infrastructure investments were required by 2023, with the state intending to provide $200bn of this through its public-private partnership (PPP) model. He urged the private sector to pick up the slack. “New methods should definitely be looked for and capital markets need to be involved more actively,” he told an infrastructure investment conference in June. It is questionable, however, whether enough private funding will be secured for the all of these projects to go ahead.
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