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Turkey's high inflation is driving home sales

Turkey's high inflation is driving home sales

Turkey's high inflation is driving home sales

The prices of real estate in Turkey have risen sharply due to a number of factors, including the demand of rich people for property to protect their savings from inflation, which has reached an annual rate of nearly 50%. Demand in the housing market has outpaced price increases by 10 percentage points above inflation, pushing prices even higher. Meanwhile, supply has fallen due to a slowdown in new investment, a result of rising costs in the construction sector.

Pressured by President Recep Tayyip Erdogan

The Turkish Central Bank cut its interest rate by 500 basis points in the last four months of 2021, despite rising inflation and at the expense of contributing to the fall of the Turkish lira. The interest rate cut led to the December''it amounted to 14%, while annual consumer inflation reached 36% and manufacturing inflation at the end of the year almost 80%. The contrarian policies provoked a flight into hard currency and gold as real yields on the lira became deeply negative. Those who invested their money in hard currency and gold were not only able to offset the impact of inflation, but also realized real returns. According to January data from the Turkish Statistical Institute (TUIK), the U.S. dollar made the highest real return of 23% for the year, followed by gold (bullion) with 19.7% and the euro with 14.5%, while those who relied on deposit interest and government bonds suffered losses of 22.75% and 32.7%, respectively. It is for this reason that many''have turned to buying real estate to protect their savings from inflation. Home sales are already up in 2020 and did not lose momentum last year, even as prices rose by 60%. In Istanbul, Turkey's largest city with a 63% annual price increase, the average price of an apartment per square meter is 121% higher than in the capital Ankara and 34% higher than in the third largest city Izmir. 'year. The nearly 60 percent gain in 2021 exceeded inflation by 24 percentage points, meaning that those who invested in housing made at least as much profit as those who relied on the U.S. dollar. And while government interventions have tried to prop up the lira and thus contain the dollar's rise since December, nothing has been able to keep real estate prices from rising.

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A larger share of savings is increasingly being channeled into the housing sector, pushing prices upwards. Demand is only expected to increase until inflation starts to fall. Another major factor pushing up house prices is the slowdown in the country's construction sector, which had been successful until a few years ago and had become a hallmark of almost two decades'Erdogan's 'rule. According to the TUIC, construction costs, including materials and labor, rose 68% in 2021 after rising 25% in 2020 and 10% in 2019. Prices of building materials alone rose 85% last year, not to mention exorbitant land prices in big cities. All of these factors portend a prolonged slowdown in housing production and a continued rise in real estate prices. Rising home prices are discouraging demand for loans, as few are willing to take on large debts amid the economic uncertainty gripping the country. In 2020, mortgage loan volume increased 37% and sales with mortgages accounted for 38% of all condo sales. Last year, mortgage loans rose just 8% to 273 billion liras, and''half of wages in Turkey. The annual increase in rental value per square meter was 62.2% in Ankara and 56% in Izmir. Rental prices also rose in real terms, not only in the three largest cities but also across the country, providing a significant incentive to invest in housing. Another important indicator is the purchase of real estate by foreigners, which Ankara is trying to promote by granting Turkish citizenship to those who buy a property worth at least $250,000 and retain ownership for at least three years. Foreigner purchase accounted for 4.7% of all home sales in 2021, which is about 4,000 apartments. Alien real estate transactions, including homes and other properties, are valued at about $4 billion according''Central Bank. Foreign buyers, mainly from the Middle East and Russia, contributed to demand, attracted by both the citizenship incentive and the depreciation of the lira, which made purchases cheaper for those buying real estate for hard currency.

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