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 Tavukçuo─člu, 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.