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.
Turkey’s house price annual change
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 meter (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 by 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 by 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 rose 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.
Demand is more or less steady
Property demand is more or less steady in Turkey, with the total number of home sales rising slightly by 1% to 1.28 million units in the first eleven months of 2022 as compared to the same period in the prior year, following a 0.5% decline during 2021, according to the TurkStat.
Over the same period, sales of new houses fell slightly by 0.7% y-o-y to 382,190 units while second-hand house sales increased 1.7% to 895,469 units.
There are also wide regional variations, with demand in Turkey’s major cities falling in favor of smaller rural areas. In the first eleven months of 2022:
- In Istanbul, which has more than a 17% share of transactions, home sales fell by 6% y-o-y to 222,910 units.
- In Ankara, which accounted for a market share of almost 9%, the number of home sales dropped 10.5% y-o-y to 109,801 units.
- In Izmir, which represented nearly 6% of the market, home sales fell slightly by 1% y-o-y to 72,626 units.
- In Bursa, which took 3.6% of the market, home sales increased 2.1% y-o-y to 46,583 units.
- In Antalya, which captured a 5.4% market share, the number of home sales rose strongly by 22.6% y-o-y to 69,291 units in Jan-Nov 2022.
Foreign homebuyers rising strongly again
In the first eleven months of 2022, foreign home purchases in Turkey rose by a huge 20.4% to 61,104 units 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.
With the exception of 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 2016 and 2021, foreign home purchases more than tripled from 18,391 units to about 58,576 units. Russians, Iranians, and Iraqis accounted for almost one-third of the total foreign purchases during the period.
“Iranians regard Turkey as an important and safe haven,” said Faruk Akbal of real estate investment company Nevita International. “They also feel culturally close to the country.”
Yet in the first eleven months of 2022, the Russians led the foreign home purchases in Turkey, representing about 22.5% share. The Iranians and Iraqis accounted for 12.2% and 9.5% share, respectively. With the surge in Russian homebuyers, Turkish banks began to open ruble accounts.
Most foreign buyers bought dwellings in Istanbul, accounting for about 40% of total sales in Jan-Nov 2022, followed by Antalya (32%), Mersin (6%), Ankara (4.2%), and Bursa (3%).
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” 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 Tavukçuoğlu, 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 was raised from US$250,000 to US$400,000. This was amidst the surge in foreign interest in buying a home in Turkey.
Residential construction activity slowing
In the first three quarters of 2022, the total number of dwelling units in residential buildings granted with construction permits in Turkey fell by 13.9% to 413,639 units from a year earlier, according to figures from TurkStat.
In Q1-Q3 2022:
- One-dwelling buildings: 34,310 dwelling units, down by 5.8% from the same period in the prior year.
- Two-dwelling buildings: 16,515 dwelling units, down by 19.3% from a year ago.
- Three- and more dwelling buildings: 362,814 dwelling units, down by 14.3% from the previous year.
Residential construction permits rose strongly by 30.2% in 2021 and by 73.8% in 2020, after declining by 52.2% in 2019 and 52.4% in 2018.
Istanbul’s rental yields are moderate to good
Turkey’s rental yields are moderate to good. 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 2.53% to 12.72% with an average of 5.99%, according to a Global Property Guide research conducted in November 2022.
In other cities, the rental yields are more or less similar to Istanbul.
- In Ankara, rental yields fall between 4.05% to 11.41%.
- Antalya produces rental yields between 3.66% to 7.99%.
- Izmir’s rental yields range from 3.69% to 13.42%.
- In Adana, gross rental yields are between 2.92% to 6.98%.
- In Bursa, rental yields range from 3.31% to 7.01%.
- Kayseri yields are between 4.77% to 7.15%.
- In Konya, gross rental yields range from 4.48% to 6.88%.
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$279,170). The following shows the revised tax rates:
- Residential properties valued below TRY 5.25 million (US$279,170) are tax-exempt.
- Residential properties valued between TRY 5.25 million (US$279,170) and TRY 7.87 million (US$418,446) are taxed 0.3% of the amount over the base level.
- For properties worth up to TRY 10.5 million (US$558,325), an extra tax rate of 0.6% is levied for the amount over TRY 7.87 million (US$418,446).
- Houses with a value of more than TRY 10.5 million (US$558,325) are taxed TRY22,500 (US$1,197) 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. In November 2022, outstanding housing loans rose by 22.1% to TRY356.2 billion (US$18.96 billion), following y-o-y growth of 7.5% in 2021 and 39.7% in 2020, based on figures from the Central Bank of the Republic of Turkey (CBRT).
By type of financial institution (as of November 2022):
- Deposit banks: total housing loans outstanding increased 22.3% y-o-y to TRY326.1 billion (US$17.35 billion)
- Participation banks: housing loans outstanding were up 20.3% y-o-y to TRY30.2 billion (US$1.61 billion)
- Development and investment banks: housing loans outstanding rose by 68.4% y-o-y to TRY1.2 million (US$65,900)
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 3% last year, from 5.8% in 2016 – an indication that, on average, the economy is still growing faster than the mortgage market.
Turkey’s currency and debt crisis
The global crisis of 2008 caused house prices in Turkey to fall 14.65% (after inflation), then by 2.82% in 2009, by 3.54% in 2010, and by 2.39% in 2011. The market then surged between 2012 and 2016, largely due to the rising middle class gaining access to mortgage finance for the first time.
House price rises started to slow after the 2016 coup attempt due to economic and political turmoil, including terrorist attacks and political uncertainty. Istanbul’s prime market particularly suffered in 2016, mostly due to the sharp depreciation of the Turkish Lira. The slower pace of house price rises continued in 2017 and 2018.
However President Recep Tayyip Erdogan, in response to multiple crises, continually expanded the Turkish economy. He needed to generate a feel-good atmosphere to change the constitution in 2017 and to win the presidential election in 2018. But putting his foot on the economic accelerator caused problems - an overheated economy, high inflation, a current account deficit, a debt build-up, and a currency decline - which have recently required tough measures from the central bank. High-interest rates and economic restraint have had an impact on the economy which they always do, and one result has been a decline in real estate prices.
President Erdogan has long held eccentric views on monetary policy, believing that inflation is caused by high interest rates which he has dubbed the “mother and father of all evil”. His views cowed the monetary authorities, and the result has been inflation, pushing the lira down.
This is ironic because Erdogan’s period in office began with a conspicuous display of fiscal orthodoxy, causing housing loan rates to decline sharply from an average of 48.43% in 2002 to just 9.7% in 2013 - one of the great successes of Turkey’s AKP government. However as inflation took off housing loan interest rates started to rise again to double digits and by December 2018, the average interest rate was 27.82%.
After falling to a record low of 9.11% in July 2020 as the government facilitated access to credit to stimulate the economy amidst the Covid-19 pandemic, housing loan interest rates have risen sharply again, reaching 20% in December 2022, despite several rate cuts by the central bank amidst surging inflation.
Inflation averaged 15% annually from 2017 to 2021, before surging to 72% in 2022.
Rising inflation has sapped the currency, but the lira’s sharp nosedive in September 2018 was partly attributable to Turkey’s worsened relationship with the US, which raised import tariffs on Turkish steel by 50% and on aluminum by 20% in protest at the detention of American pastor Andrew Brunson, who faced charges in relation to the failed coup attempt in 2016. Brunson was released after two years of detention.
The current account deficit widened from US$33.1 billion in 2016 to US$47.5 billion in 2017, a surge of almost 44%, according to the CBRT. The Turkish Lira plunged to TRY 6.3 per USD 1 in September 2018, from TRY 3.48 per USD 1 the previous year – an almost 45% drop. The lira has remained weak since.
Turkey has now amassed a large amount of foreign-currency debt due to years of current account deficits but does not have sufficient reserves to support its liabilities.
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, the current account balance returned to deficit in recent years, as the COVID-19 pandemic hit. Turkey run a current account shortfall of US$36.7 billion in 2020 and US$14.88 billion in 2021. Official forecasts estimated the deficit to have reached US$47.3 billion last year – the highest since 2013.
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. Despite soaring inflation, the central bank slashed its key interest rate by 1,000 basis points since September 2021 demanded by President Erdogan to buoy economic growth.
The 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.
- Housing Unit Prices (Monthly) (Central Bank of the Republic of Turkey): https://evds2.tcmb.gov.tr/index.php?/evds/serieMarket/collapse_26/5949/DataGroup/english/bie_hkfe/
- House Sales Statistics, November 2022 (Turkish Statistical Institute): https://data.tuik.gov.tr/Bulten/Index?p=House-Sales-Statistics-November-2022-45683
- Consumer Price Index, December 2022 (Turkish Statistical Institute): https://data.tuik.gov.tr/Bulten/Index?p=Consumer-Price-Index-December-2022-49651&dil=2
- Interest Rate Statistics (Central Bank of the Republic of Turkey): https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Statistics/Interest+Rate+Statistics
- Monetary Developments- November 2022 (Central Bank of the Republic of Turkey): https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Statistics/Monetary+and+Financial+Statistics/Monthly+Money+and+Banking+Statistics/
- Turkey rental yields are moderate to good (Global Property Guide): https://www.globalpropertyguide.com/Europe/Turkey/Rental-Yields
- Iranians lead foreign purchases of Turkish homes in Q1 (Daily Sabah): https://www.dailysabah.com/business/economy/iranians-lead-foreign-purchases-of-turkish-homes-in-q1
- Turkey offers citizenship to foreign property buyers (Al Jazeera): https://www.aljazeera.com/economy/2017/1/13/turkey-offers-citizenship-to-foreign-property-buyers
- New Turkish citizenship rules to encourage investment (Daily Sabah): https://www.dailysabah.com/business/2018/09/19/new-turkish-citizenship-rules-to-encourage-investment
- The measures transforming Turkey’s property market (Property Turkey): https://www.propertyturkey.com/news/the-measures-transforming-turkeys-property-market
- Turkey is raising the investment threshold for a residence permit and citizenship (Visit Ukraine): https://visitukraine.today/blog/406/turkey-is-raising-the-investment-threshold-for-a-residence-permit-and-citizenship
- Turkey introduces new tax for upscale houses (Hurriyet Daily News): https://www.hurriyetdailynews.com/turkey-introduces-new-tax-for-upscale-houses-161666
- The new law of buying property in Turkey and obtaining Turkish residence in 2022 (Tam Turkey): https://tamturkey.com/en/the-new-law-of-buying-property-in-turkey/
- Turkey amends Luxury Housing Tax provisions (EY): https://taxnews.ey.com/news/2020-0423-turkey-amends-luxury-housing-tax-provisions
- Turkey’s Erdogan calls interest rates “mother of all evil”; lira slides (Reuters): https://www.reuters.com/article/us-turkey-currency/turkeys-erdogan-calls-interest-rates-mother-of-all-evil-lira-slides-idUSKBN1IC1NV
- Turkey´s economic crisis deepens as Trump doubles tariffs (The Guardian): https://www.theguardian.com/world/2018/aug/10/turkeys-economic-crisis-deepens-as-trump-doubles-tariffs
- Turkey interest rate (Trading Economics): https://tradingeconomics.com/turkey/interest-rate
- Turkey´s current account deficit tumbles to $14.9B in 2021 (Daily Sabah): https://www.dailysabah.com/business/economy/turkeys-current-account-deficit-tumbles-to-149b-in-2021
- Turkey’s current account deficit expected to reach $48 billion in 2022: report (Turkish Minute): https://www.turkishminute.com/2023/01/06/turkey-current-account-deficit-reach-48-billion-2022/
- Republic of Türkiye (International Monetary Fund): https://www.imf.org/en/Countries/TUR
- The World Bank in Türkiye (World Bank): https://www.worldbank.org/en/country/turkey/overview
- Labour Force Statistics, November 2022 (Turkish Statistical Institute): https://data.tuik.gov.tr/Bulten/Index?p=Labour-Force-Statistics-November-2022-49384&dil=2
- Consumer Price Index, December 2022 (Turkish Statistical Institute): https://data.tuik.gov.tr/Bulten/Index?p=Consumer-Price-Index-December-2022-49651&dil=2
- Türkiye foresees 5% economic growth for 2022, 2023: Nebati (Daily Sabah): https://www.dailysabah.com/business/economy/turkiye-foresees-5-economic-growth-for-2022-2023-nebati