Market in Depth

Turkey: a crisis and maybe an opportunity

Lalaine C. Delmendo | July 10, 2021

Turkey's nationwide house prices soared by 30.6% during the year to Q1 2021, to an average of TRY 4,054 (US$502) per square metre (sq. m.), according to the Central Bank of the Republic of Turkey (CBRT), following y-o-y rises of 32.6% in Q4 2020, 28.1% in Q3, 23.7% in Q2, and 15.1% in Q1.

However in real terms house price growth is far more modest, at 13% during the year to Q1 2021, due to persistently high inflation. Yet this remains one of the strongest y-o-y episodes of real house price growth over the past decade.

On a quarterly basis, nationwide house prices increased 4.3% in Q1 2021 but were actually unchanged when adjusted for inflation.

In Turkey's major cities:
  • In Istanbul, Turkey's largest city and most expensive housing market, the average house price rose by 20.8% during the year to Q1 2021 to TRY 6,312 (US$782) per sq. m.  Adjusted for inflation, house prices were up a modest 4.5% y-o-y.
  • In Ankara, the country's capital, house prices rose by 28.3% y-o-y in Q1 2021 (11% inflation-adjusted) to an average of TRY 2,972 (US$368) per sq. m.
  • In Izmir, the country's third largest city, house prices went up by almost 40% y-o-y in Q1 2021 (21% inflation-adjusted) to TRY4,911 (US$608) per sq. m.

Turkey's housing market was mainly buoyed by local demand.  Foreign investment fell last year due to coronavirus-related restrictive measures.

During 2020, the total number of home sales in Turkey rose by 11.2% to almost 1.5 million units, in contrast to y-o-y declines of 1.9% in 2019 and 2.4% in 2018, according to Turkish Statistical Institute (TurkStat). Home sales increased 11.5% in Istanbul and surged by 18.6% in Ankara.

Foreign home purchases fell by 10.2% y-o-y to 41,298 units in 2020 due to coronavirus restrictions, according to TurkStat figures, having risen more than 38% annually during the years 2017-19. 

In what is likely further to encourage foreign purchases, in March 2021 the Turkish lira lost almost 8% of its value against the US dollar from just a month earlier, to TRY 7.68 per USD 1, after Erdogan unexpectedly sacked central bank governor Naci Agbal, on top of a 50% currency devaluation over the past three years.  For foreigners, the currency's devaluation means that the property market is very attractively priced, luring many buyers from the Gulf.

“Property values are low in dollar terms,” said Priti Pandey of the School of Real Estate, RICS School of Built Environment, Amity University in Mumbai. “The Turkish government's decision to postpone the imposition of the luxury housing tax for one year, to 2021, impacted house demand positively, although the Covid situation did set a cautious approach to investment.”

However Turkey's housing market growth is expected to moderate this year, as interest rates remain stubbornly high, and with the luxury housing tax now in force.


Turkey's economy grew by 1.8% during 2020, emerging as one of only few countries globally to avoid a contraction due to the COVID-19 pandemic. The growth was mainly driven by a burst of credit in mid-2020, with state banks lending almost doubled in 2020 from a year earlier.

Economic growth is projected to accelerate this year, with the International Monetary Fund (IMF) forecasting a 6% expansion – slightly more optimistic than the World Bank's estimate of a 5% growth.


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

Turkish economy avoids COVID contraction

Turkey’s economy grew by 1.8% during 2020, emerging as one of only few countries globally to avoid a contraction due to the COVID-19 pandemic.

The growth was mainly driven by a burst of credit in mid-2020. To avoid a coronavirus-induced economic recession, the government loosened monetary policy and introduced a stimulus package equivalent to 13% of GDP, mostly delivered through the banking sector in the form of partial credit guarantees and loan deferrals. As a result state bank lending almost doubled in 2020.  Other fiscal programs included social support payments to households, tax deferrals, assistance to furloughed workers, and support for businesses.

The result was that during 2020:
  • Turkey’s economy grew by 1.8%
  • Financial sector activity surged by more than 21%
  • Tourism and other services fell by 4.3%
  • The construction sector, an engine of growth in recent years, fell by 3.5%

Economic growth is projected to accelerate this year, with the International Monetary Fund (IMF) forecasting a 6% expansion – slightly more optimistic than the World Bank’s estimate of a 5% growth.

Turkey gdp inflation
In March 2021, annual inflation surged to 16.19%, the highest level since July 2019, according to TurkStat. Inflation was 12.3% last year, after 15.2% in 2019 and 16.3% in 2018, according to the IMF.

Unemployment rose to 13.4% in February 2021, up from 12.7% a year earlier, according to TurkStat. Unemployment averaged 10.7% from 2010 to 2020.

The current account balance in fact 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, last year the current account balance returned to deficit, as the COVID-19 pandemic hit. During 2020, Turkey run a current account shortfall of US$36.7 billion.

Turkey exchange rate
In March 2021, the Turkish lira lost another 8% of its value from just a month earlier, to TRY 7.68 per USD 1, after Erdogan unexpectedly sacked central bank governor Naci Agbal. During his less than five months in office, Agbalraised the country’s key interest rate by roughly 450 basis points to 19%, a move that most economists believe was necessary to tame the country’s high inflation and to stabilize the Turkish lira. The surprise removal of Agbal shocked both local and foreign investors, who had praised the central bank’s recent monetary policy.

In April 15, 2021, Turkey’s newly appointed central bank governor SahapKavcioglu held the key rate unchanged at 19% but removed a pledge to deliver additional tightening, prompting speculation that rate cuts might be imminent.
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