The Kapali Carsi

Turkey’s ‘Real’ Real Estate Boom

Rachel Ziemba, regional director at my blog’s host Roubini Global Economics, was in town to meet up with market participants last week, so I invited her and a few finance professional friends to dinner on Wednesday.

Here is the intro. to my latest Hurriyet Daily News column, on Turkish real estate (mainly residential) developments. The dinner conversation provided inspiration for the column, so it was appropriate I started that way. You can read the whole at the HDN website, and there is a summary at the most recent Roubini Global Economics Economonitor weekly. I note there, as well as a response to a reader’s comment, that I am not saying there is huge residential real estate bubble in Turkey that will burst tomorrow. Even if that happened, we would not see banks going under, not only because mortgages and construction lending as a share of GDP are small, but also because Turkish banks are well-capitalized. You are more likely to see a couple of construction firms going under, and banks swallowing some losses as a result. The Istanbul Stock Exchange, led by banks and construction companies, would underperform, some hot-shot Istanbul bankers would lose bonuses, other not-so-hotshot ones their jobs, but that’s about it. Anyway, all I’m saying is that we should be watching residential property developments closely.

I also have a couple of additional points to make:

First, I note in the column that there is a lot of variation in home prices in Istanbul’s different districts. I will have a separate post on that soon, as REIDIN has promised me the data to do that analysis. You can also generalize this comment to other residential property as well. For example, I also feel, based on the grumbles of expat executives I’ve been talking to, that luxury office rents in Istanbul have risen quite a bit more than national averages. This is probably just a result of limited supply, as premium office space that multinationals require is really limited in Istanbul.

Second, while looking at data for the column, I noticed that the Central Bank’s house price index was increasing much faster than the rent subsection of  TurkStat’s consumer price index. In plainspeak, this suggests that home prices are increasing faster than rents recently. I wondered if this fact holds true in REIDIN data as well. As you can see below, where I simply took the ratio of both indices, for TurkStat as well as REIDIN, it does, although the pattern is not as strong as in the CBT/TurkStat ratio.

While I did not put it in the graph, the house price-rent ratio has been flat in Izmir, for which I had REIDIN data as well,  for the last couple of years or so. At this point, I am just stating these as facts; I may need to do another column on this house price-rent ratio “puzzle” in the future.

Third, the quote in the column that home sales have decreased 20-25 percent yoy this year is actually from the president of the Association of Real Estate Investment Companies (GYODER). That’s from a piece in Turkish daily Zaman, which was basically saying that sales to foreigners, because of the recent laws making it easier for them to buy residential property, were making up for decreased domestic demand. By the way, an article published in the Hurriyet Daily News yesterday was reporting that there were huge debates in the Parliament regarding property sales to foreigners.

On a side point, the Zaman article was claiming most of the sales were to Middle Eastern nationals. I’ve been hearing lots of claims that they make up the bulk of the mysterious Net Errors and Omissions item in the Balance of Payments, which means that they are the ones who are in effect financing the current account deficit. I am thinking about doing a separate column on that.

Fourth, if you would like to learn more about the Turkish construction sector, you can have a look at Turkish bank TEB’s report, which was published a few days ago. Nothing too exciting, but at least, you’ll have an idea what kind of data on the sector are out there…

Last but not the least, I think this was a well-placed/timed article, as there was a lot of reader interest for it: Not only the column made it to the top 10 most popular items in yesterday’s paper, it was shared 35 times, two thirds of which were on Twitter. OK, this is not much compared to NYT, FT and the like, but HDN articles/columns usually get shared only a few times, and even less so for boring economics columns. And so I have a right to gloat- and of course thank my readers:)

A displeased reader once called my ego inflated. That may or may not be true, but vanity is supposedly the devil’s favorite sin:)…

15 Responses to “Turkey’s ‘Real’ Real Estate Boom”

TatiJune 26th, 2012 at 7:27 pm

Hi – Isnt 70% of the population under the age of 30, mortgage market only makes up around 5% of GDP, increased demand from young people for housing, re-urbinization project, rebuilding housing for earthquake resistant standard housing Istanbul and surrounding area…loan growth still growing/but slowing…. but demand is still there?

Emre Deliveli edeliveliJune 26th, 2012 at 8:10 pm

The problem is not demand, but supply. The economy is slowing down, and home sales are falling, but supply hasn't adjusted, it seems…

AkbarJune 28th, 2012 at 7:32 am

Thanks for the article, you have proved my worries. I wouldn't call it a bubble, its more like supply-demand mismatch. There is great potential for demand but average income just surpassed 10,000$ and I don't think middle class or below middle class population can possible afford these prices. There is a correction due and my question is: when do you see this affecting home prices?

Emre Deliveli edeliveliJune 28th, 2012 at 8:21 am

Yep, it is a supply boom not met by demand… Well, as I note in the column, the official data is lagging behind, but if the GYODER President is right on the 20-25% fall, this could be quite soon…

SabriAugust 7th, 2012 at 8:20 pm

If you don't call a 20-25% fall a crash, what is a crash? By the way, do bubbles in the end not boil down to supply booms-demand busts? Why not call a dog a dog if it is a dog?

AkbarAugust 8th, 2012 at 8:32 am

You don't call it a crash, you call it a correction. If real estate prices doubled in last 5 years and its coming down 25% its not a crash. Of course some over-invested and greedy ones might crash but its healthy for economy and beneficial for home buyers.

glamerApril 27th, 2013 at 11:23 am

Ups and downs happen on every sector. If down won't be there then the excitement of ups can’t be appreciated. A 25 % down in Real Estate market in these 5 years is really a matter to think and why it is happening? This is all due to the brokers of real estate who don’t have the license but easily can make fool the people. So better to go for licensed Real estate services.
Brentwood Real Estate Agents

SmithMay 10th, 2013 at 9:23 am

To purchase a land is really a difficult and tough task now a day. So it better to go for the real estate which helps to have a land easily and in a perfect price. Though there are lots of brokers, they tries always to trap the people and provide wrong information and also many time try to make fool. To overcome from these brokers real estate is one of the best services. Ups and downs are two sides of a Real estate business. In 2000 decade there is a revolution in real estate field and till today its continuing. In revolution also the rates varies purchased a home at $70000 but I am getting a rate of 5% more than I invest. So before investing money we should verify everything, and also we should give importance to profit.

Truckee Home FinderJune 18th, 2013 at 4:28 am

People say this real estate boom is a bubble. But, I beg to differ the reason being people have better salaries now and they can actually afford buying luxury apartments. Turkey is no exception to this success.

MikeJuly 1st, 2013 at 9:29 am

I worked as real estate agent in Bethlehem and the article above is indeed informative. Knowledge on how real estate business is doing is an advantage as I can better position the properties that I offer.

Homes DubaiSeptember 19th, 2013 at 9:47 pm

You have to offer something unique that has not been offered by others, especially big players in the commercial real estate market. Because this is the only thing that will make you stand out from the crowd.