Turkey: Price History

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Last Updated: Jun 25, 2008

Ownership uncertainties hit Turkey’s property market

Real estate prices in Turkey rose strongly after the relaxation of foreign ownership restrictions in December 2005 under Law No. 5444. Double-digit annual price increases were reported in several key areas of Turkey from 2005 to 2007.

More than 73,000 foreigners, mostly Britons, Germans and Greeks, have bought properties in Turkey. They poured US$10.4 billion into the real estate market over five years (2002-2007).

On April 16, 2008, Turkey’s Constitutional Court invalidated sections of Law No. 5444 concerning purchase of rural properties by foreign companies. With that, the issuance of title deeds to all foreign buyers, individuals and companies alike, was suspended.

The title-issuance freeze was lifted in May 2008, and a new law was passed in June addressing the contentious portions regarding ownership. However, some damage has been done. Price falls were reported in several key areas, especially in the south. Foreign buyers were reported to have backed out from some investments. The uncertainty has dealt the market a blow.

Domestic market

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The domestic market too shows some signs of losing steam. Turkey’s property market has long ridden a wave of optimism about the country’s strong economic growth under the Justice and Development (AK) Party. The total number of dwellings for construction based on building permits rose steadily from 145,397 units in 2002 to 597,786 units in 2006, on the back of the growth GDP per capita from US$3,560 in 2002 to US$9,630 in 2007.

However, recent domestic political and economic uncertainties, combined with the global economic slowdown, high interest rates and rising fuel and food prices, led to a slowdown in 2007. The economy grew by only 4.5%, and growth is expected to be about 3% - 4% in 2008. As a result, during the past year (2007), house building permits issued declined slightly, to 577,789 units.

Housing credits rose from 0.2% of GDP 2003 to 3.7% in 2007. The fastest rise was seen in 2005 when outstanding mortgages expanded 368%. It was followed by a 79% rise in 2006 and 39% increase in 2007.

The long-delayed mortgage law, which was introduced in February 2007, would have been expected to further boost the market. But mortgage market volumes are expected to increase only by 37% in 2008, a low rise given the housing market’s potential.

Economic reforms

Turkey has long had a history of economic instability, which only began to be resolved when the present government was elected. Successive governments overspent the national budgets, causing runaway inflation and a series of foreign exchange crises, which discouraged foreign investment.

The Islamist-based Justice and Development (AK) Party, which won a landslide victory in November 2002 and July 2007, has resolved so many of Turkey’s long-standing economic problems. Led by Prime Minister Recep Tayyip Erdogan, the government has improved services, and has identified EU entry as a key priority. Erdogan presided over reforms to the court system and increased the area of freedom of speech, long restricted by military influence.

Most importantly, the new government presided over dramatically better management of the economy. The economy, expanding for the sixth consecutive year, grew by 4.5% in 2007. Average growth from 2002 to 2006 was 7.2%. GDP per capita rose from US$3,560 in 2002 to US$9,630 in 2007.

For decades, Turkey has suffered annual inflation of 25% to 106% per annum. Runaway inflation was successfully brought down to manageable levels. Since 2004, inflation has been below 10%, a significant improvement from the 104% inflation rate registered in 1994. Inflation was 8.7% in 2007, the lowest in more than two decades (however, it still one of the highest in Europe).

The unemployment rate improved to 9.6% in 2007 from 10.3% in 2002. The budget deficit was down to 1.6% of GDP in 2007, the lowest in 30 years.

Although things have already improved, much more has to be done. Total external debt stood at US$218 billion in 2007, around 44% of GDP.

Inflation rose to 9.66% in April 2008 and is expected to exceed 10% once more due to rising oil and food prices. The budget deficit is seen to rise once more to 3% of GDP in 2008 and 2009.

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