Market in Depth

Turkey's housing market recovering remarkably, but outlook is now uncertain

Lalaine C. Delmendo | June 26, 2020

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 hasTurkey'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 partlybeen 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.


Analysis of Turkey Residential Property Market »

Rental Yields

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.

Read Rental Yields »

Taxes and Costs

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%.

Read Taxes and Costs »

Buying Guide

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.

Read Buying Guide »

Landlord and Tenant

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.

Read Landlord and Tenant »

ECONOMIC GROWTH

Turkey’s economy to contract this year, lira plummets further

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 gdp inflation
Unemployment dropped to 13.2% in March 2020, from 13.6% in the previous month and 14.1% a year earlier, according to TurkStat.

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.

In May 2020, the Turkish lira plunged to TRY 6.93 per USD 1, more than 36% drop from its value two years ago, after the country’s central bank announced new restrictions on foreigners making lira-denominated transactions in an effort to prevent speculation and short-selling.

Amid the Turkish Lira’s “extreme volatility” credit ratings agency Standard & Poor’s (S&P) lowered the country’s credit rating from “BB-” to “B+” in August 2018. Moody’s also downgraded Turkey’s credit rating from “Ba2” to “Ba3” the same month and further to “B1” in June 2019 with a negative outlook. In July 2019, Fitch Ratings had cut its rating from “BB” to now “BB-”.
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