The property market in Turkey’s largest city, İstanbul, is witnessing stubbornly high prices despite an ever-growing inventory while a housing bubble remains a distant possibility thanks to strong demand and low leverage risks to buyers.
İstanbul is an attractive city for outside buyers, whether from other parts of Turkey or abroad. The city remains the top destination for tens of thousands of migrants from the country’s Anatolian heartland. Market players and pundits say the city will remain Turkey’s property star despite such factors as heavy traffic and high land prices that negatively impact quality of life — and this is why the developers will not cut prices.
According to a recent report by property research firm Knight Frank, a number of key emerging markets recorded price growth of more than 10 percent — including Turkey at 12.5 percent — in the 12-month period ending Sept. 30, 2013, over the preceding year. Underlying this steep increase is strong demand as well as increased taxes and the price of land, experts told Today’s Zaman.
Speculation spread through the markets following recent comments made by renowned economist Nouriel Roubini about an impending housing market train wreck of global proportions, with housing markets in 18 countries vulnerable to meltdown. Roubini correctly predicted the US housing bubble and its collapse. He has said the affected overheating housing markets include Turkey.
The cost per square meter of new İstanbul housing projects begins at TL 1,000 to TL 1,500. On eastern and western outskirts of the city — the directions in which the city is expanding — these numbers could even double. Market players say these prices are affordable thanks to relatively low mortgage interest rates and strict banking discipline, which means that financial institutions are cautious when granting loans.
Experts acknowledge that the 2007-2008 global financial crisis was triggered by the burst of a US housing bubble. Observers are now asking whether high property prices in emerging markets — with relatively weaker growth rates in recent years — will evolve into bubbles that will eventually pull down their economies.
Economist Saruhan Özel told Today’s Zaman that there is relatively lower leverage risk in Turkey compared to other emerging markets and the current situation in the İstanbul real estate market “should in no way signal a bubble.” Recalling that subprime mortgage lending created the illusion of wealth in US real estate markets ahead of the 2008 crisis, Özel stated that Turkish banks are far more careful when extending loans. “We do not have high household debt rates and banks are able to collect on a great proportion of the loans they extend. [The burst of a bubble] depends on whether the demand for new housing is real or not; it is real in Turkey, so it is in İstanbul,” he stated during a telephone interview.
“In emerging markets, the housing bubbles are being formed by efforts to manipulate currency rates, high inflation, lack of other investment alternatives and rapid urbanization whereby housing demand is outstripping supply,” Roubini has noted. However, according to Turkish contractors, there is no risk to the balance between supply and demand in the country. “There are 700,000 housing units in Turkey that are either under construction or have just been completed; around 150,000 of these are in İstanbul. … The country generates demand for 550,000 new houses per year; this number is 100,000 for İstanbul,” Serdar İnan, head of the Turkish construction company İnanlar İnşaat, told Today’s Zaman. İnan added that people may find that housing prices are relatively higher in certain parts of İstanbul but that this is basically due to increased construction costs stemming from demand for higher-quality houses.
“There may be differences in prices among the districts of the city [İstanbul], but we have to pay higher taxes and more money for the land than we used to. … So, the prices are still reasonable,” another construction firm head, DAP Yapı head Ziya Yılmaz, told Today’s Zaman. Houses are being built for all income groups and demand from foreign buyers remains high, Yılmaz argued. He said his company has sold almost all of the new houses it recently put up for sale and is preparing to begin new projects; İnan said he has sold all of his houses, 40 percent of which went to foreign buyers.
One factor that experts say will help Turkey’s real estate markets maintain dynamism is a current government urban transformation project. “The restoration of old buildings and the transformation of urban areas will continue to attract local and international real estate investors in the long term,” Özel argued.
A recent meeting in İstanbul called Turkey Design Mission 2013 valued the anticipated countrywide urban transformation projects at as much as $400 billion. Construction firms state that 70 percent of the current housing units in İstanbul, in which 55 percent of its 15 million residents reside, were constructed in the past 30 years. They say it is likely the city will continue to similarly transform over the next few decades.
Despite this summer’s anti-government protests and low profit rates in housing, foreign investors, including the Singapore sovereign wealth fund GIC and US private equity giant Blackstone, have continued to buy Turkish retail properties over the past year.