When adjusted for inflation, house prices rose 9.13%.

The REIDIN Turkey residential property price indices (TRPPIs) are calculated monthly and cover 7 major cities, their 71 districts and 481 sub-districts. The national TRPPI is a weighted average of those city indices. It uses June 2007 as the base year (June 2007=100).

During the year to January 2013:

In Ankara, the capital, sales prices for existing homes rose 13.92%
In Adana, house prices rose 16.54%
In Antalya, house prices rose 22.62%
In Bursa, house prices rose 9.42%
In Istanbul, the residential sales prices for existing homes rose 19.47%
In Izmir, house prices rose 16.07%
In Kocaeli, house prices rose 6.74%

In the primary housing market, prices are also rising, albeit at a slower pace. REIDIN’s GYODER new home price index rose by 9.24% (1.8% inflation-adjusted) during the year to January 2013.

This is in line with data published by the Central Bank of the Republic of Turkey (CBRT) which showed that existing home prices rose by 11.5% (5.1% inflation-adjusted) in 2012 from the previous year. Over the same period, prices for newly-built houses increased by 12.5% (6% inflation-adjusted).

The total number of houses sold rose by 1.76% to 103,543 units in the third quarter of 2012 from the same period last year, according to the Turkish Statistics Institute (TurkStat). However, housing sales actually dropped by 2.35% in Q3 2012 from the previous quarter.

Property prices in Turkey are expected to continue rising in 2013, according to some local property experts.

Primary market: smaller house prices rising faster

Smaller-sized houses in Turkey have seen the highest price increases in the primary housing market during the year to January 2013.

The average price of 51-75 square metre (sq. m.) newly built houses rose by 9.9%
Prices of 76-100 sq. m. houses rose by 9.59%
Prices of 101-125 sq. m. houses increased by 9.31%
Prices of 126-150 sq. m. houses rose by 8.75%
The average price of 151 sq. m. and bigger sized properties increased by 7.58%

Global crisis hit Turkey’s housing market

Over the period 2007 to 2011, house prices in Turkey fell by 2% (-29% inflation-adjusted).  From an annual average GDP growth of 6.8% in 2002-2007, Turkey’s growth slowed sharply to 0.7% in 2008, mainly due to the global financial meltdown. Existing house prices plunged 22.45% (-14.65% inflation-adjusted) in 2008.

Turkey’s economy remained depressed in 2009, with real GDP contracting 4.8%. Despite this, existing house prices rose a nominal 3.52% y-o-y in 2009, by 2.63% in 2010 and by another 7.81% in 2011. But when adjusted for inflation, house prices actually dropped by 2.82% in 2009, by 3.54% in 2010 and by 2.39% in 2011.

Now, construction activity is rising

The total number of permits (for two and more dwelling residential buildings) rose 16% to around 722,600 units in 2012, after declining by 24.8% the previous year, according to the CBRT.  The total value increased 27.3% to TRY75.3 billion (US$41.6 billion) in 2012.

From 2005 to 2009, the average number of dwelling permits (for two and more dwelling residential buildings) was around 520,000 per year. Then in 2010, it soared by 83.4% to 829,000 units, in line with the 9.2% real GDP growth.

Interest rates have declined dramatically

Turkey’s mortgage market has expanded rapidly in recent years, mainly fuelled by falling interest rates.  Total outstanding housing loans increased almost six times, from TRY12.4 billion (US$6.8 billion) in 2005 (about 1.9% of GDP) to TRY86 billion (US$47.5 billion) in 2012 (6.1% of GDP).

In 2012, total outstanding housing loans in Turkey rose by 15.4%. Deposit money banks hold almost 92.4% of outstanding housing loans, while participation banks hold 7.6%.

Non-performing housing loans fell to about 0.8% in the third quarter of 2012, down from 0.9% in 2011 and 1.4% in 2010.

Over the past decade average interest rates on housing loans in Turkey have fallen enormously, from about 48.25% in 2002, to just 9.46% in March 2013, according to the CBRT.  In May 2010, the CBRT adopted the one-week repo rate as policy rate, then cut this rate four times from 7% in May 2010 to 5.5% in December 2012.  The CBRT has kept it at 5.5% since then, while cutting the borrowing rate from 4.75% to 4.5%, and the lending rate from 8.75% to 8.5%.

Residential rents are rising, rental yields are moderate-to-good

Residential rents for existing homes in Turkey rose by 15.17% y-o-y in January 2013, according to Reidin. Over the same period, Izmir saw the highest rise in residential rents of 18.98%, followed by Antalya (18.5%), Adana (14.85%) and Ankara (14.35%). Residential rents also increased in Istanbul (15.24%), Bursa (9.31%), and Kocaeli (8.22%).

In January 2013, the nationwide gross rental yields were around 6.2%, almost the same as last year. Over the same period, the gross rental yields in Ankara were 5.9%, 6.3% in Istanbul and 5.7% in Izmir.

In 2002, the Turkish property market was first opened to foreign buyers but they were only allowed to purchase properties in a few zones. Another restriction was the so-called reciprocity clause which meant that only nationals of countries allowing reciprocal real estate purchasing rights for Turkish citizens, like Britain, Germany and the Netherlands, were allowed to buy properties in Turkey.

In 2005, the zones were abolished but reciprocity remained.

Then in May 2012, the government passed a bill ending the reciprocity requirement, to attract more foreign homebuyers. Since August 2012, the government has allowed nationals from 183 countries to buy properties in Turkey. In addition, the size of land foreigners can buy without needing special permission was increased from 2.5 hectares, to 33 hectares.

Nationals of China, Russia, India and of Gulf Arab states, previously banned because of the reciprocity rules, are now allowed under the new law. When fully implemented, this new law is expected to boost housing demand in the country.

“This is very important for us in the sector and for the economy as a whole,” said Arman Ozver, of Sotheby’s International Real Estate in Istanbul. “In 2009, foreigners spent around $1.5 billion on Turkish real estate. We are now expecting at least four or five times that figure in 2013.”

The economy is strong, but growing in spurts 

Turkey’s economy is a mixed picture.  The economy is projected to grow 3% in 2013, and by 3.8% in 2014, according to the European Commission.

Turkey’s Achilles heel is its current account deficit, 6.6% in 2012, down from above 8% in both 2010 and 2011.  2011’s TRY139.9 billion (US$77.2 billion) deficit was just about the highest in the world outside the US, according to the CBRT.  Many analysts expect the deficit to widen again this year, as domestic demand picks up again.

The financial sector is however strong.  A banking crisis in 2001 caused the economy to shrink by 5.7%, but significant reforms since then have included:

The autonomy of the central bank;

The recapitalization of the two largest public banks and some private banks;
seizure or closure of insolvent banks;
restructuring of key institutions

Turkey has experienced robust economic growth since, averaging 6.8% per year from 2002 to 2007.

However, the global financial meltdown caused the economy to contract by 4.8% in 2009.  GDP growth rebounded to 9.2% in 2010, and 8.5% in 2011, but slowed to 2.5% in 2012, partly driven by the slump in the country’s main European trading markets. In 2012, net foreign direct investment plunged by about 40% to US$8.3 billion from a year earlier.

In November 2012, unemployment stood at 9.4%.  Turkey’s jobless rate has remained above 8% since the 2001 banking crisis. In November 2012, the number of Turks out of work was 2.63 million.  Unemployment is expected to decline to 7.6% in 2013 and 7% in 2014.

In January 2013, consumer prices increased 7.31% from a year earlier, up from 6.16% in December 2012, according to TurkStat.   The government is now targeting inflation of 5%, GDP growth of 5% and a current account deficit-to-GDP ratio of 5%.

The Turkish state is becoming more illiberal

The Islamist-based Justice and Development Party (AKP) won a landslide election victory in 2002. In its early years, Turkey’s AKP government was seen internationally as the Islamic equivalent of Europe’s Christian Democratic parties, i.e., a force for moderation and modernity.  The AKP was credited with bringing economic growth and political stability to Turkey. EU membership was declared to be one of the government’s top priorities. In September 2010 it won public approval for its plans to amend the constitution, partly to meet the requirements for EU membership, but above all to reduce further the power of the military.

However liberal observers worry about the AKP’s growing intolerance towards journalists and media practitioners.  TV stations have been suspended for airing sensitive topics. Journalists have been imprisoned or attacked by the police. Another worry is the imprisonment of three generals and more than 300 other officers in 2011 for allegedly plotting to overthrow the government through a secret organization called Ergenekon (Sledgehammer). Few observers were fully convinced by the government’s case. In protest, the chiefs of staff resigned in the summer of 2011. The government, instead of the military, appointed their successors for the first time in the history of Turkey.

However, the AKP remains enormously popular. Potential instability is not at present a concern.

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