Turkey’s strong house price growth is just an illusion

Turkey continues to experience hyperinflation, with its overall inflation still extraordinarily high at 64.8% in December 2023, the highest level since November 2022. From an annual average of just 10.9% from 2003 to 2021, inflation surged to a whopping 72.3% during 2022 and remained elevated since.

Turkey’s house price annual change

Turkey’s nationwide house prices rose by a whopping 86.46% in October 2023 from a year earlier, to an average of TRY 30,036 (US$998) per square meter (sq. m.), according to the Central Bank of the Republic of Turkey (CBRT), the following y-o-y rises of 179% in 2022, 64% in 2021, 32.6% in 2020, and 2.9% in 2019.

However, there is a huge difference between the nominal and real figures. When adjusted for inflation, nationwide house prices increased by a more moderate 12.4% during the year to October 2023.

In Turkey’s major cities:

  • In Istanbul, Turkey’s largest city and most expensive housing market, the average house price soared by 66.7% during the year to October 2023 to TRY 44,387 (US$1,475) per sq. m. Adjusted for inflation, house prices were up by just 3.3% y-o-y.
  • In Ankara, the country’s capital, house prices skyrocketed by a huge 94.3% y-o-y in October 2023 to an average of TRY 23,304 (US$775) per sq. m. When adjusted for inflation, house prices increased by 20.4%.
  • In Izmir, the country’s third largest city, house price growth accelerated to 77.2% y-o-y in October 2023 to TRY34,774 (US$1,156) per sq. m. House prices increased by a more moderate 9.8% in real terms.

New dwelling prices rose strongly by 91.1% (18.4% inflation-adjusted) y-o-y in October 2023 while existing dwelling prices increased by 86.8% (15.8% inflation-adjusted).

Turkey Annual House Price Change in Major Cities graph

The demand for residential properties in Turkey is showing signs of decline, with the total number of home sales decreasing by 14.9% to 1.09 million units in the first eleven months of 2023 compared to the same period in the previous year. This follows year-on-year declines of 0.4% in 2022 and 0.5% in 2021.

Foreign demand is also falling. In Jan-Nov 2023, foreign home purchases in Turkey plunged by a huge 46.1% to 32,941 units as compared to 61,104 units in the same period a year ago. This was in stark contrast to the robust y-o-y growth of 15.2% registered in 2022 and 43.5% seen in 2021. As a result, foreign homebuyers’ share of the market fell to just 3% in Jan-Nov 2023, down from 4.8% in the prior year.

The overall economy is growing modestly. Turkey’s economy grew by about 4% during 2023, following annual expansions of 5.5% in 2022, 11.4% in 2021, 1.9% in 2020, and 0.8% in 2019, buoyed by strong household spending and improved investor confidence, based on figures released by the International Monetary Fund (IMF). The IMF projects the Turkish economy to expand by a modest 3% in 2024 – more conservative than the World Bank’s estimate of a 4.3% growth.

Turkey Residential Property Prices graph

Price variations in primary and secondary markets

In October 2023, new dwelling prices in Turkey surged by 91.1% (18.4% inflation-adjusted) from a year earlier, following annual increases of 161% in 2022, 66.7% in 2021, 31.6% in 2020, and 10.7% in 2019. 

For new dwellings:

  • In Istanbul, new dwelling prices were up 81.8% (12.6% inflation-adjusted) y-o-y in October 2023.
  • In Ankara, prices surged 97.7% (22.5% inflation-adjusted).
  • In Izmir, prices climbed by 85.9% (15.2% inflation-adjusted).

Likewise, nationwide existing dwelling prices increased by 86.8% (15.8% inflation-adjusted) y-o-y in October 2023, after registering an annual growth of 169% in 2022, 57.9% in 2021, 30.2% in 2020, and 8.8% in 2019.

For existing dwellings:

  • In Istanbul, existing dwelling prices increased by 72.9% (7.1% inflation-adjusted) in October 2023 from a year earlier.
  • In Ankara, prices more than doubled over the same period (but up by a more moderate 25.5% in real terms).
  • In Izmir, prices rose by 80.4% (11.8% inflation-adjusted)

Turkey New and Existing Dwelling Price Indices graph

Demand is falling

Residential property demand continues to weaken in Turkey, with the total number of home sales falling by 14.9% to 1.09 million units in the first eleven months of 2023 as compared to the same period in the prior year, following y-o-y declines of 0.4% during 2022 and 0.5% in 2021, according to the TurkStat.

Over the same period, sales of new houses fell by 14.1% y-o-y to 328,299 units while second-hand house sales dropped by 15.2% to 759,050 units.

There are wide regional variations, but demand is falling in most of Turkey’s major cities in the first eleven months of 2023:

  • In Istanbul, which has more than 16% share of transactions, home sales fell sharply by 21.5% y-o-y to 175,025 units.
  • In Ankara, which accounted for a market share of 9.5%, the number of home sales dropped 6.2% y-o-y to 102,974 units.
  • In Izmir, which represented more than 5% of the market, home sales fell by 19.7% y-o-y to 58,299 units.
  • In Antalya, which also captured more than 5% market share, the number of home sales dropped by 16.3% y-o-y to 57,978 units in Jan-Nov 2023.
  • In Bursa, which took 3.7% of the market, home sales declined by 13.1% y-o-y to 40,486 units.
  • In Mersin, which accounted for nearly 3% of the market, home sales fell by 10.5% y-o-y to 30,808 units.

Turkey House Sales graph

Foreign homebuyers plummeting

In the first eleven months of 2023, foreign home purchases in Turkey plunged by a huge 46.1% to 32,941 units as compared to 61,104 units in the same period a year ago, based on figures released by TurkStat. This was in stark contrast to the robust y-o-y growth of 15.2% registered in 2022 and 43.5% seen in 2021.

As a result, foreign homebuyers’ share of the market fell to just 3% in Jan-Nov 2023, down from 4.8% in the prior year.

Except for the years 2016 and 2020 due to the Covid-19 pandemic, property sales to foreigners have been generally rising in Turkey. Foreign buyers had been buying large amounts of Turkish property, mirroring a substantial increase in Gulf tourism. As the Lira has fallen visitors have been attracted to Turkey. 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.

Between 2013 and 2022, foreign home purchases more than quadrupled from 12,181 units to about 67.490 units. Russians, Iranians, and Iraqis accounted for almost one-third of the total foreign purchases during the period. They regard Turkey as a safe haven and they feel culturally close to the country.

Turkey House Sales to Foreigners graph

In the first eleven months of 2023, the Russians led the foreign home purchases in Turkey, representing about 30.2% share. The Iranians were a distant second, with a market share of 12.3%. They were followed by the Iraqis with a market share of 5.5%, Ukrainians with a 4.8% share, Kazakhstanis with 4%, and Germans with 3.9%.

With the surge in Russian homebuyers, Turkish banks began to open ruble accounts.

Most foreign buyers bought dwellings in Antalya, accounting for about 36.7% of total sales in Jan-Nov 2023, followed by Istanbul (31.7%), Mersin (8.5%), Ankara (3%), and Bursa (2.7%).

Turkey House Sales to Foreigners by Province graph

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”. This means that 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 finally 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 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.

“The regulation easing requirements for foreigners to acquire Turkish citizenship, the volatility in the Turkish lira against other currencies, and the VAT exemption for foreigners helped spur the sales,” said Melih TavukçuoÄŸlu, head of Istanbul’s Asian-side Contractors’ Association.

Turkey has granted citizenship to foreigners through various means since January 2017, which includes purchasing property worth at least US$1 million. During the same year, the government introduced other measures to entice foreign homebuyers:

  • Reduction of Land Registry’s title deed fees from 2% to 1.5%, which are payable by both the buyer and the seller (or around 3% in total).
  • VAT exemptions for property owners who buy a Turkish property but do not live in Turkey, on the condition that they pay for the property with foreign currency. Homebuyers must also hold the property for 12 months after purchase.
  • Stamp duty for “promise to sell agreements” reduced to 0%, from 0.95%.

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.

However effective June 13, 2022, the minimum threshold to obtain citizenship through real estate investment was raised from US$250,000 to US$400,000. This was amidst the surge in foreign interest in buying a home in Turkey during 2021-22.

To obtain residency in the country through real estate, foreign buyers need to invest a minimum of US$50,000. The amount increases to US$75,000 for purchases in metropolitan cities like Istanbul, Ankara, Izmir, Mugla, and Antalya. Though effective October 16, 2023, the minimum investment to become a resident was raised to US$200,000 across all cities in Turkey.

Residential construction activity increasing

In the first three quarters of 2023, the total number of dwelling units in residential buildings granted with construction permits in Turkey rose strongly by 24.1% to 520,209 units from a year earlier, according to figures from TurkStat. This followed an annual decline of 4.1% during 2022.

In Q1-Q3 2023:

  • One-dwelling buildings: 37,284 dwelling units, up by 8.1% from the same period in the prior year.
  • Two- or more dwelling buildings: 481,090 dwelling units, up strongly by 25.5% from a year ago.
  • Three- and more dwelling buildings: 362,814 dwelling units, down by 14.3% from the previous year.

The total number of residential construction permits rose by 8.1% y-o-y to 90,285, following an annual decline of 7.7% during 2022 and strong growth of 44% in 2021 and 72.6% in 2020.

Turkey Number of Dwellings Units in Residential Buildings Granted with Construction Permits graph

Istanbul’s rental yields are moderate to good

Turkey’s rental yields are moderate to good, with a nationwide average gross rental yield of 6.52% in Q3 2023, according to a recent Global Property Guide research conducted in October 2023.

In Istanbul, the gross rental yields on apartments - the return earned on the purchase price of a rental property, before taxation, vacancy costs, and other costs - range from 2.84% to 9% with a city average of 6.21% in Q3 2023. This is slightly higher as compared to the city average of 5.99% recorded in the prior year.

In other cities, the rental yields are more or less similar to Istanbul.

  • In Ankara, gross rental yields fall between 5.37% and 10.13%, with a city average of 7.15%.
  • Antalya produces rental yields between 3.16% and 8.03%, with a city average of 5.05%.
  • Izmir’s rental yields range from 4.8% to 8.16%, with a city average of 6.51%.
  • In Adana, gross rental yields are between 5.28% and 9.5%, with a city average of 7.26%.
  • In Bursa, rental yields range from 6.16% to 7.9%, with a city average of 7.05%.
  • Kayseri yields are between 5.17% and 7.24%, with a city average of 6.16%.
  • In Konya, gross rental yields range from 5.43% to 8.18%, with a city average of 6.81%.

Round-trip transaction costs are reasonable in Turkey.

The luxury housing tax came into effect

The luxury housing tax and other tax measures entered into force in January 2021. It is imposed on residences with a value of over TRY 5.25 million (US$174,484). The following shows the revised tax rates:

  • Residential properties valued below TRY 5.25 million (US$174,484) are tax-exempt.
  • Residential properties valued between TRY 5.25 million (US$174,484) and TRY 7.87 million (US$261,560) are taxed 0.3% of the amount over the base level.
  • For properties worth up to TRY 10.5 million (US$348,968), an extra tax rate of 0.6% is levied for the amount over TRY 7.87 million (US$261,560).
  • Houses with a value of more than TRY 10.5 million (US$348,968) are taxed TRY22,500 (US$748) plus 1.0% of the amount over the base level.

There are some exemptions. Those who own only one residence will not be subject to the said tax. Moreover, those who own more than one residence will not be subject to the luxury housing tax on whichever residence has the lowest value.

Mortgage loans surging, but market size relative to GDP shrinking

Turkey’s residential mortgage loans continue to rise strongly. In November 2023, the total value of outstanding housing loans soared by 23.9% to TRY440.2 billion (US$14.63 billion), following y-o-y growth of 20.6% in 2022, 7.9% in 2021, 39.4% in 2020, and 5.5% in 2019, based on figures from the Central Bank of the Republic of Turkey (CBRT).

By type of financial institution (as of November 2023):

  • Deposit banks: total housing loans outstanding increased 21.9% y-o-y to TRY397.42 billion (US$13.21 billion)
  • Participation banks: housing loans outstanding were up strongly by 41.8% y-o-y to TRY42.77 billion (US$1.42 billion)
  • Development and investment banks: housing loans outstanding skyrocketed by 384% y-o-y to TRY5.99 million (US$199,144)

Over the past seventeen years, housing loans in Turkey have grown by an annual average growth of more than 22% from 2005 to 2022. Despite this, the size of the mortgage market relative to GDP has shrunk to below 2% in 2023, from 5.8% in 2016 – an indication that, on average, the economy is still growing faster than the mortgage market.

Turkey Housing Loans graph

Turkey’s currency and debt crisis

The global crisis of 2008 caused house prices in Turkey to fall 14.65% (after inflation), then by 2.82% in 2009, by 3.54% in 2010, and by 2.39% in 2011. The market then surged between 2012 and 2016, largely due to the rising middle class gaining access to mortgage finance for the first time.

House price rises started to slow after the 2016 coup attempt due to economic and political turmoil, including terrorist attacks and political uncertainty. Istanbul’s prime market particularly suffered in 2016, mostly due to the sharp depreciation of the Turkish Lira. The slower pace of house price rises continued in 2017 and 2018.

However President Recep Tayyip Erdogan, in response to multiple crises, continually expanded the Turkish economy. He needed to generate a feel-good atmosphere to change the constitution in 2017 and to win the presidential election in 2018. But putting his foot on the economic accelerator caused problems - an overheated economy, high inflation, a current account deficit, a debt build-up, and a currency decline - which have recently required tough measures from the central bank. High interest rates and economic restraint have had an impact on the economy which they always do, and one result has been a decline in real estate prices.

President Erdogan has long held eccentric views on monetary policy, believing that inflation is caused by high interest rates which he has dubbed the “mother and father of all evil”. His views cowed the monetary authorities, and the result has been inflation, pushing the lira down.

Turkey Interest Rates on Housing Loans graph

This is ironic because Erdogan’s period in office began with a conspicuous display of fiscal orthodoxy, causing housing loan rates to decline sharply from an average of 48.43% in 2002 to just 9.7% in 2013 - one of the great successes of Turkey’s AKP government. However as inflation took off housing loan interest rates started to rise again to double digits and by December 2018, the average interest rate was 27.82%.

After falling to a record low of 9.11% in July 2020 as the government facilitated access to credit to stimulate the economy amidst the Covid-19 pandemic, housing loan interest rates have risen sharply again, reaching 20% in December 2022, despite several rate cuts by the central bank amidst surging inflation. Interest rates for housing loans surged further to a whopping 42.1% in December 2023.

Inflation averaged 15% annually from 2017 to 2021, before surging to an annual average of 62% in 2022 to 2023.

Rising inflation has sapped the currency, but the lira’s sharp nosedive in September 2018 was partly attributable to Turkey’s worsened relationship with the US, which raised import tariffs on Turkish steel by 50% and on aluminum by 20% in protest at the detention of American pastor Andrew Brunson, who faced charges in relation to the failed coup attempt in 2016. Brunson was released after two years of detention.

The current account deficit widened from US$33.1 billion in 2016 to US$47.5 billion in 2017, a surge of almost 44%, according to the CBRT. The Turkish Lira plunged to TRY 6.3 per USD 1 in September 2018, from TRY 3.48 per USD 1 the previous year – an almost 45% drop. The lira has remained weak since.

Turkey has now amassed a large amount of foreign-currency debt due to years of current account deficits but does not have sufficient reserves to support its liabilities.

The current account balance recorded a surplus of US$1.67 billion in 2019, its first and highest surplus since 2001, largely due to the lira’s decline. However, the current account balance returned to deficit in recent years, as the COVID-19 pandemic hit. Turkey run a current account shortfall of US$36.7 billion in 2020 and US$14.88 billion in 2021. Then in 2022, the deficit climbed further to US$48.7 billion – the highest level since 2023. In November 2023, Turkey recorded a current account deficit of US$2.72 billion.

The country’s budget deficit widened by nearly 900% in a year marked by a presidential election and two ravaging earthquakes. During 2023, the budget deficit reached TRY1.4 trillion (US$46.51 billion), from TRY142.7 billion (US$4.74 billion) in the prior year, according to the Treasury and Finance Ministry.

In the past three years, the Turkish lira lost about 69% of its value from just TRY 5.85 per USD 1 in December 2019 to TRY 18.66 per USD 1 in December 2022, as the central bank continued its unorthodox rate-cutting policy against a backdrop of soaring prices and trade imbalances. Despite soaring inflation, the central bank slashed its key interest rate by 1,000 basis points from September 2021 to February 2023 demanded by President Erdogan to buoy economic growth.

However, with persistently high inflation, the central bank started to reverse gear and aggressively raise its key interest rates. In December 2023, the central bank raised its benchmark one-week repo rate, its seventh consecutive rate hike in recent months. It is now the highest level in two decades.

Despite this, the Turkish lira lost another 36% of its value against the US dollar in just a year, reaching a monthly average exchange rate of TRY 29.08 = USD 1 in December 2023.

Turkey Monthly Average Exchange Rates graph

Turkish economy continues to grow modestly, inflation remains elevated

Turkey’s economy grew by about 4% during 2023, following annual expansions of 5.5% in 2022, 11.4% in 2021, 1.9% in 2020, and 0.8% in 2019, buoyed by strong household spending and improved investor confidence, based on figures released by the International Monetary Fund (IMF).

“The recent actions to raise the policy rate, increase taxes, and liberalize some financial sector measures have reduced risks and lifted investor confidence, compressing spreads and improving the reserve position of the Central Bank of the Republic of Türkiye (CBRT),” said the IMF.

The IMF projects the Turkish economy to expand by a modest 3% in 2024 – more conservative as compared to the World Bank’s estimate of a 4.3% growth.

The seasonally adjusted unemployment rate stood at 9% in November 2023, down from 10.1% in the same period last year, according to TurkStat. The jobless rate was 7.5% for men and 11.8% for women. Overall unemployment averaged 10.7% from 2010 to 2022.

Turkey GDP Growth and Unemployment graph

In December 2023, annual inflation was 64.77%, at par with the prior year’s 64.27%, based on figures from TurkStat. Inflation averaged 10.1% from 2004 to 2021, before skyrocketing to 72.3% in 2022.

Turkey Inflation graph

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