Turkey sees surge in house sales after Erdoğan incentives

Turkish sales of housing rose for the first time in four months after the government introduced incentives such as slashing mortgage rates charged by state-run banks.

Sales of housing in Turkey climbed an annual 2.7 percent in May, the first increase since January, data from the State Statistical Institute showed on Monday. The increase was led by non-mortgage sales, which jumped 10.7 percent. Istanbul led growth.

In May, Turkey took measures to boost the real estate industry, a leader of the country’s economic growth under President Recep Tayyip Erdoğan. State-run banks including Ziraat Bank, the country’s biggest lender, slashed interest rates on mortgage loans to below 1 percent monthly, a key psychological barrier in Turkey. Rates charged by other banks stood at about 1.25 percent. The government also limited the commissions of estate agents to 4 percent in an effort to spur demand.

House purchases via mortgages fell 11.7 percent in May from a year ago, a slower pace of decline than previous months, the data showed. A slump in mortgage lending, prompted by a rise in interest rates, had been the main factor in depressing the market.

Turkish housebuilders have also cut prices. In May, 40 large firms jointly reduced the price of some new housing by 20 percent to stimulate demand and sell off old stock.  

House sales in May rivalled the numbers seen in the second half of last year as the government stimulated the economy with tax cuts and loan guarantees.

Economists have warned that economic growth in Turkey, which exceeded 7 percent annually for the past three quarters, may lead to a “hard landing”. The government has shrugged off the warnings, saying high growth rates will continue after presidential and parliamentary elections on June 24.

Still, 500 basis points of rate increases by the central bank – policymakers raised rates by 425 basis points in May and June alone to 17.75 percent to stem a slump in the value of the lira – are expected to slow economic growth as borrowing becomes more expensive. State-run banks are also taking losses on mortgage lending as their borrowing costs rise and inflation accelerates, raising questions about the sustainibility of the initiaitive.

Erdoğan’s closest business allies have been very active in house-building, as wells as construction of airports, bridges and roads, winning socres of large-scale government contracts.