Is there a bubble in the real estate market in Turkey?

In recent years, the question of whether a price bubble has formed in the real estate sector has often been raised, and with rising prices, this topic is becoming relevant again. The international commercial real estate consulting firm, Cushman & Wakefield, has released its second report addressing this question. The issue of a price bubble in the Turkish real estate market continues to spark serious debate. In its first report published in 2014, the company already analyzed the situation, and now it has expanded it with data from the International Monetary Fund and the OECD. The new report provides an opportunity to look at the issue of the price bubble in the context of global trends, and it once again discusses this important question related to urban transformation.

Urban transformation, according to the report, has significantly impacted secondary housing prices, making them higher. The study examines the price-to-rent and price-to-income ratios, which are considered indicators of price bubbles in global markets. This data is compared with housing prices and sales volumes, as well as construction cost indicators, interest rates, and inflation, to assess the economic conditions in Turkey in more detail. Unlike the report released two years ago, data from Turkey has been compared with international figures for a more in-depth analysis, allowing for a deeper exploration of the subject.

According to the report, the increase in housing prices does not pose a threat to the country's economy. A representative from Cushman & Wakefield,Tugra GyondenIt claims that the risk of a housing bubble in Turkey is not relevant, despite the long-discussed trend of rising housing prices that exceeds the growth of rental rates. He added that the main issue for the real estate market in Turkey remains the question of how sustainable these prices are. According to him, unlike the global market, the rise in housing prices in Turkey does not pose a threat to the national economy, as the impact of rising prices on the credit market is limited.“The share of mortgage loans in Turkey's GDP is only 6%, while the global average is around 50-60%.”“Therefore, even if housing prices in Turkey rise to levels observed abroad before the global financial crisis, the likelihood that this will exert significant pressure on the credit market is low,” explains Gyonden.

Research starting from 2010 shows that although the prices for buying and renting housing have been steadily increasing, this growth became more pronounced from 2013 onwards. Influential factors contributing to the price increase include changes in legislation, such as the VAT change in 2013 and the urban transformation law adopted in May 2012.

According to the data, over the past five years, income per capita has increased by67%...while prices for secondary housing have doubled. It is noteworthy that the increase in prices for new homes has amounted to...58%...were lower than the growth rates of income. Furthermore, the report emphasizes that, in addition to the impact of urban transformation on sales prices, they are also affected by rising construction costs, interest rates, and currency exchange rates. Thus, construction costs have increased by...55%This has become a significant factor, considering the land shortage in central areas and the rising prices. Most new projects are being developed on the outskirts, which explains the relatively low prices for new housing.

The report states that the average payback period for investments in housing has increased from16to18 years oldand its cost is equivalent to the average annual income in8.6 yearsIn the previous report, this deadline was16 years old, and the cost -7 yearsannual income. Data from Turkey was also compared with IMF data, which showed that the country is among those with the highest price growth. Additionally, Turkey is known for having one of the highest rates of increase in the gap between prices and income.

The analysis also shows that against the backdrop of rising prices for secondary housing and rentals, the dynamics in Turkey differ from other markets. The interest rates on housing loans are in the range of1.35-1.40the negative impact on housing sales figures using mortgages. According to IMF data at the end of 2015, Turkey became the sixth country in the world in terms of housing price growth rates. Among the leaders in price growth were also Qatar, New Zealand, and Hong Kong, while in Russia, the United Arab Emirates, and Ukraine, there has been a decline in housing prices of more than30%In Turkey, the highest price increases have been recorded in cities such asIstanbul, Adana, Yalova, and Antalya.

The greatest difference between the growth rates of housing prices and rental rates is observed in cities such asIsfendiyar and KahramanmaraşIf we analyze the situation in Istanbul, the cost of housing has increased by more than since 2012.100%in most areas. The leaders in price growth are the districtsKadıköy, Sarıyer, Zeytinburnu, Maltepe, and FatihMany of these areas are actively developing thanks to urban transformation projects.