Turkey hit with hyperinflation
Lalaine C. Delmendo | March 22, 2022
Turkey is currently experiencing hyperinflation, with its overall inflation surging to a record high of 85.51% in October 2022, before easing slightly to 84.39% in November and 64.27% in December 2022. These figures were far from the annual average of 10.9% from 2000 to 2021.Predictably, house prices are skyrocketing, too!
Turkey's nationwide house prices rose by a whopping 189.9% in November 2022 from a year earlier, to an average of TRY 16,984 (US$904) per square metre (sq. m.), according to the Central Bank of the Republic of Turkey (CBRT), following y-o-y rises of 64% in 2021, 32.6% in 2020, and 2.9% in 2019. It was one of the strongest y-o-y episodes of house price increases ever recorded.
Despite the huge difference between the nominal and real figures, inflation-adjusted house price growth during the year to November 2022 remains very high at 57.2%.
In Turkey's major cities:
- In Istanbul, Turkey's largest city and most expensive housing market, the average house price soared by 193.9% during the year to November 2022 to TRY 26,904 (US$1,432) per sq. m. Adjusted for inflation, house prices were up by 59.4% y-o-y.
- In Ankara, the country's capital, house prices rose by a huge 195.9% y-o-y in November 2022 to an average of TRY 12,446 (US$663) per sq. m. When adjusted for inflation, house prices increased 60.5%.
- In Izmir, the country's third largest city, house price growth accelerated to 202.9% y-o-y in November 2022 (64.3% inflation-adjusted) to TRY20,861 (US$1,110) per sq. m.
New dwelling prices rose by 164.5% (43.4% inflation-adjusted) y-o-y in November 2022 while existing dwelling prices increased 176.4% (49.9% inflation-adjusted).
Overall property demand is more or less steady. In the first eleven months of 2022, the total number of home sales rising slightly by 1% to 1.28 million units as compared to the same period in the prior year, following a 0.5% decline during 2021, according to the Turkish Statistical Institute (TurkStat).
Foreign home purchases in Turkey rose by a huge 20.4% to 61,104 units in the first eleven months of 2022 as compared to 50,735 units in the same period a year ago, based on figures released by TurkStat. This was the highest sales to foreign homebuyers ever recorded.
In what is likely further to encourage foreign purchases, 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.
For foreigners, the currency's devaluation means that the property market is very attractively priced, luring many buyers from the Gulf.
Turkey's economy grew by about 5% during 2022, following annual expansions of 11.4% in 2021, 1.9% in 2020, 0.8% in 2019 and 3% in 2018, buoyed by strong investment, production and exports. Though economic growth is projected to slow this year, with the International Monetary Fund (IMF) forecasting a modest 3% expansion – slightly more optimistic than the World Bank's estimate of a 2.7% growth.
Analysis
of Turkey Residential Property Market »
Istanbul now much less expensive in dollar terms
Prices per square metre for apartments in Istanbul have declined dramatically in dollar terms, and now range from €1,100 to €4,600, but this very large range obviously depends enormously on location. Apartments in the marvellously attractive Bebek district of Besiktas are much more expensive than in most other parts of Istanbul, with prices of around €4,600 per square metre. The decline in prices (valued in dollars) has taken place despite a continuous rise in home prices in local terms and is largely due to the dramatic decline of the Turkish New Lira under Turkey's all-knowing, all-wise President Recip Erdogan.
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% to 4.7%.
In previous years, our research has shown that rental yields are significantly higher on smaller apartments. But then smaller apartments tend to need more maintenance, so a higher yield is justified. It is rather obvious, however, that higher rental yields are to be earned in the poorer districts where per square metre prices are lower, and it is in these districts that rental yields edge up to 4.5%.
Round trip transaction costs are reasonable in Turkey. See our Turkey transactions cost analysis and our Turkey transaction costs compared to other countries.
Rental income tax is high in Turkey
Rental Income: Net rental income is taxed at progressive rates, from 15% to 35%.
Capital Gains: Capital gains from sale of real estate are tax-exempt provided that the holding period is longer than five years (four years if the property was acquired before 01 January 2007). For properties held less than five years (four years if the property was acquired before 01 January 2008), normal income tax rates apply.
Inheritance: Inheritance tax is imposed on the value of the inheritance at progressive rates, from 1% to 10%.
Residents: Residents are taxed on their worldwide income at progressive rates, from 15% to 35%.
Total transaction costs are low in Turkey
Total transaction costs are low in Turkey. The buyer pays for all transaction costs, which are around 8% to 11%of the property value.
Turkish rental market generally favours tenants
Turkish laws are pro-tenant
Rents: Rents may be freely agreed at the beginning of rental contracts. There is no other form of rent control in Turkey.
Tenant Security:The parties of the lease may specify any duration period they wish. The lease is automatically extended for one more year, unless the landlord informs the tenant in writing at least fifteen days before the expiration date of the lease that it cannot be renewed.
Turkish economy continues to grow
Turkey’s economy grew by about 5% during 2022, following annual expansions of 11.4% in 2021, 1.9% in 2020, 0.8% in 2019 and 3% in 2018, amidst significant gains achieved in investment, employment and exports.
“In this period when the risk of recession has increased for many developed and developing countries, the Turkish economy continues to grow strongly thanks to our model, and the composition of the growth also displays a balanced outlook,” said the country’s Treasury and Finance Minister Nureddin Nebati.
Economic growth is projected to slow this year, with the International Monetary Fund (IMF) forecasting a modest 3% expansion – slightly more optimistic than the World Bank’s estimate of a 2.7% growth.
The seasonally-adjusted unemployment rate stood at 10.2% in November 2022, unchanged from the previous month, according to TurkStat. The jobless rate was 8.8% for men and 12.9% for women. Overall unemployment averaged 10.8% from 2010 to 2021.
In December 2022, annual inflation was 64.27%, down from 84.39% in November and a peak of 85.51% in October, but still one of the highest level recorded in the past two decades, based on figures from TurkStat. Inflation averaged 10.9% from 2000 to 2021.