Turkish housing market grinding to a halt despite incentives
Attempts by the Turkish government to breathe life into a stagnating housing market have been insufficient, with a record drop in mortgage lending this month indicating the tough times ahead for the construction sector, Ahval’s Can Teoman wrote in a column on Thursday.
Long one of the driving forces of the Turkish economy, the sector has fallen victim to financial pressures that have made Turks wary of signing agreements that could have them paying over the odds to buy property.
With the housing market slowed down by rising interest rates since September 2017, Turkey’s Justice and Development Party (AKP) government attempted to reinvigorate the market before the elections in June by introducing a series of incentives to buy property, including tax rebates on real estate purchases and a discount to a monthly interest rate of 0.98 percent on mortgages.
Nevertheless, the construction sector has shrunk in the second half of the year with the drop in house sales leaving many contracting companies facing bankruptcy. Since August there has been an 80 percent drop in sales of homes with mortgages.
The drop in mortgage customers began in July, when Ankara’s diplomatic feud with the United States over U.S. citizens jailed in Turkey led to sanctions on Turkish ministers and a series of shocks to the country’s currency and interest rates.
Since then, the mortgage market has declined by 12 billion lira ($2.27 billion) to 176.4 billion lira, with the greatest drop experienced between December 14 and December 21, with a record-breaking one-week decline of 1.3 billion lira ($245 million).
Several banks have stepped in to offer an incentive package to buyers for the coming year, including an extension on the 0.98 percent interest rate. While customers at this discounted rate will pay interest of 12.4 percent, those paying normal rates must cough up 27.84 percent yearly interest.
Despite this and the other tax incentives on offer, the central bank’s figures show that demand for houses in Turkey is still at a low.
The most significant reason for this, the bank said, was customer’s fears that properties will drop in real value. High inflation has meant that investors have lost around 14 percent in property value since the beginning of the year, due to high inflation.