Sep 11 2018

Turkey's construction bubble deflates – Wall Street Journal

Turkey’s construction boom is unravelling according to journalist Georgi Kantchev writing in the Wall Street Journal, Tuesday.

Across Turkey, Kantchev said, countless construction projects have been either suspended or cancelled as companies struggle to pay off dollar denominated debts against a backdrop of mounting economic problems.  

“The construction sector in Turkey is sick, even on the verge of a coma,” said Tahir Tellioglu, chairman of the Building Contractors Confederation of Turkey, “70% of all private construction work has stopped or slowed down.”

The problems follow years in which Turkish President Recep Tayyip Erdoğan enthusiastically promoted the construction sector, turning it into an engine of the economy. As a result, many companies with limited experience in the sector joined the bandwagon.

“Mr. Erdogan’s ambitions,” wrote Kantchev, “coincided with a torrent of liquidity unleashed by the world’s top central banks following the 2008 financial crisis. As a result, many of the construction projects dotting Turkey and punctuating Istanbul’s skyline were built on the back of cheap foreign-currency loans.”

Those loans are now hard to service, with the lira having lost 40 percent of its value against the dollar this year and the price of construction materials increasing sharply.

“This sounds horribly familiar to episodes in Spain or Ireland,” said Paul McNamara of GSM, a money-management company based in London.

In an effort to revive the sector, Turkey’s government has begun granting subsidies. “In August,” wrote Kantchev, “it began offering soft loans and a discount of 10% on 100,000 properties, while capping required deposits at 10%. Called “Winning time for Turkey,” the campaign is heavily promoted on television.”

It’s already too late for many though. 60-year-old Zeynep Düzgünoğlu lives in a tent in Istanbul after agreeing to have her house demolished two years ago.

She was promised an apartment in a new high-rise development on the Asian side of Istanbul. But last summer the construction company stopped paying rental allowances and told clients it had insufficient cash to continue work on the project.

“When I had my house, I wasn’t a poor person,” said Düzgünoğlu, “Now I am a beggar.”