Rising prices for Turkish real estate

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In 2015, a Qatari businessman allegedly acting as an intermediary for the country's emir, Tamim bin Hamad Al Thani, spent more than $100 million on a villa on the shores of the Bosphorus, the strait that divides Turkey's largest city between Asia and Europe. Earlier this year, another estate formerly owned by a sex cult leader recently sentenced to nearly 900 years in prison for a series of crimes was sold for $26 million.

Nowadays, even ordinary real estate in Istanbul is beyond the means of most Turks.

In the two years to May, the price of a square meter of real estate in the city has risen by more than 480 percent, according to Endeksa, a consulting firm. Even after adjusting for inflation, which reached an annual rate of 86% last fall before slowing to just 40% in May, home prices in Turkey as a whole rose 51% last year, more than in any other major economy, according to a Bank for International Settlements survey. Israel came in a distant second place with 11%. Rental prices have also risen sharply. According to a senior city official, the average cost of rent in Istanbul, home to more than 16 million people, now exceeds the average income.

The main reasons are the reckless interest rate cuts imposed as a result of Turkish President Recep Tayyip Erdogan's misguided policies and a sharp rise in inflation.

These events have prompted those Turks who have access to sufficient credit to protect their wealth by investing in real estate.

Earthquakes that have devastated large swathes of southern Turkey this year, killing more than 50,000 people, have also had an impact.

Many of the estimated 3 million people who were displaced by the disaster have moved to other parts of the country, causing an almost immediate increase in demand. Fears of a similarly devastating earthquake in Istanbul, which is close to a major fault zone, have caused prices of new and safe buildings in the city to rise sharply. The biggest price increases, according to a recent study by the Center for Economic and Social Research at Bahçeşehir University, occurred in areas far from the fault zone.

You could be forgiven for thinking that this is a ripe bubble waiting to burst.

But even the policy turnaround that began on June 22, when Turkey's central bank raised its benchmark interest rate by 6.5 percentage points, may not be enough to bring the real estate market down. Analysts expect prices to continue to rise, though not as fast as before, as long as inflation expectations remain high.

And so they remain. The new interest rate hike, deemed too low for a significant change, failed to take pressure off the lira: it fell 3% against the dollar shortly after the decision. The currency has since lost 18% since Mr. Erdogan's re-election on May 28. This, and the recent 34% increase in the minimum wage, in addition to the 55% increase six months ago, inevitably support inflation.

This article appeared in the Europe section of the print edition under the headline "Real Estate Soars." From the June 24, 2023 issue.