Consequences of recession on the real estate market of Turkey

  • The economic recession of Turkey in 2018
  • The slump in the real estate market of Turkey
  • Property purchases by foreigners in Turkey during recession


In the year 2018, Turkey plunged into recession that saw a decline for 3 consecutive quarters. While economists have different opinions on the causes of recession, some of the widely accepted causes are the excessive current account deficit of the country and the large foreign currency debt. The geopolitical friction between Turkey and the United States, the tariffs imposed by the US President Donal Trump on Turkish products and the monetary policy of the Turkish president Recep Tayyip Erdogan further exacerbated the situation. The economic recession of Turkey resulted in high inflation, rising interest rates, rising loan defaults and most significantly the devaluation of the Turkish Lira. In this Blog, we have evaluated the consequences of recession on the real estate market of Turkey.

The real estate market of Turkey witnessed healthy growth from 2012 to 2016 owing to the easier access to mortgage finance after 2012. In the graph below, we can see that in 2013, there was a sudden spike in the housing sales volume in Turkey. When the economic contraction began in 2018, the banks started to raise interest rates for business loans, consumer loans and mortgage loans. The rising interest rates made borrowings difficult for people in Turkey. The interest rates on housing loans were under 10% during 2013 but reached in the range of ~25% to ~30% by December 2018. As a result, the outstanding mortgage loans saw barely 0.6% YoY increase in 2018. The unemployment in Turkey increased and there was pessimism among the local population.  The consumer spending in Turkey declined and this affected the real estate market as well. The volume of house purchases dropped in 2018 by 2.41% amidst the recession. There were more than 2 million unsold houses in Turkey in 2018. Though the housing price index rose by 10.5% in 2018 on a YoY basis, on inflation adjusted basis, there was a decline by 9.2% YoY. In the country’s three largest cities of Istanbul, Ankara and Izmir the housing prices fell by 12.6%, 10.5% and 7.6% on YoY basis respectively in 2018 in inflation adjusted terms. The decline in real estate properties sold continues in 2019. The number of housing units sold fell by 21.7% in first half of 2019 on YoY basis to 505,796 units. Owing to the negative sentiment in the current state of the economy, the locals are increasingly cautious about investing in property.

However, in contrast to the trend displayed by domestic purchasers, the real estate market witnessed an uptick in the number of foreigners purchasing property in Turkey over the past few years. Up until 2002, foreign buyers (nationals) were not allowed to purchase property in Turkey. However, in 2002, the Turkish property market was opened to only those nationals of foreign countries that allowed for reciprocal purchase rights of real estate to citizens of Turkey (under thee “reciprocity clause”). With the implementation of this clause, citizens of a few countries like the United Kingdom, Germany and the Netherlands were permitted to buy properties in specific zones of Turkey. Further, in 2005, they were allowed to buy property all over Turkey. In August 2012, the reciprocity constraint was removed and nationals from 183 countries were allowed to buy properties in Turkey. In addition, there are several measures which the government has undertaken during the last few years, including granting citizenships to foreigners purchasing property in Turkey. All these relaxed measures taken by the government continue to attract foreigners to Turkey’s real estate market. In 2017, foreign direct investment in Turkey was USD 10.8 billion out of which 42.9% was invested in real estate and construction. However, in addition to relaxation in government policies, it was the devaluation of Lira that truly attracted foreigners to buy property in Turkey. The Lira was depreciating with respect to the US dollar since 2016, Lira lost more than 40% with respect to the US dollar since the beginning of 2018. This made buying property much more economical & appealing to foreigners. In 2018, foreigners bought 39,663 units in Turkey, representing 78.4% YoY increase. The number of properties sold to foreigners rose by 68.8% in the first half of 2019 on YoY basis, reaching 19,952 units. 

While the property purchases by foreigners is increasing but its overall base continues to be very low representing only 3.8% of total property purchases in H1 2019. For any major turnaround, the real estate market cannot depend on the property purchases by just foreigners. The reduced purchasing power of locals amidst extended weakness in the sector is not a positive factor for long term prospects of the country. For the real estate markets condition to improve, it is imperative that property purchases by the locals gains traction once again. On a positive note, the Turkish economy is showing some signs of recovery and recession is partly under control. In the second quarter of 2019, Turkey witnessed a real GDP growth of 1.2%. If things start improving further for the economy, the locals can likely once again have a healthy access to mortgage loans at relatively lower interest rates, which alongside other positive factors can kickstart the positive cycle in the real estate market in the country.

Your Rating

Slack set out to kill E-mail

Started as a side project for internal use in a gaming company High revenue growth with recurring revenues Went Public by offering shares through the Direct Public Offering ...

Tire manufacturing industry, analysing the cost and margin trends

The global market for tire manufacturing stands at $180 billion. Michelin anticipates the long-term demand to rise at the rate of 5 to 10% a year in developing markets and 1 to 2% a year in mature...

Will the Big Bang merger drive, of Indian Public Sector banks, provide the required impetus to the slowing economy?

India’s Government announces plans to merge 10 of the country’s public sector banks Probable impact of the mergers   India’s Finance Minister, Nirmala Sitharaman,...

An analysis of Malaysian rubber glove industry

How big is the international rubber gloves market? Reasons behind the healthy and steady growth Malaysia’s role in the industry Why are companies struggling for stable...

Overview of Textiles Industry in India and Impact of Covid-19

  Overview of Infrastructure sector in India Current state and performance Outlook   Textile Industry is one of the largest contributors to the country’s exports...