The property market in Turkey’s largest city, İstanbul, is witnessing stubbornly high prices despite an ever-growing inventory while a housing bubble remains a distant possibility thanks to strong demand and low leverage risks to buyers.
İstanbul is an attractive city for outside buyers, whether from other parts of Turkey or abroad. The city remains the top destination for tens of thousands of migrants from the country’s Anatolian heartland. Market players and pundits say the city will remain Turkey’s property star despite such factors as heavy traffic and high land prices that negatively impact quality of life — and this is why the developers will not cut prices.
According to a recent report by property research firm Knight Frank, a number of key emerging markets recorded price growth of more than 10 percent — including Turkey at 12.5 percent — in the 12-month period ending Sept. 30, 2013, over the preceding year. Underlying this steep increase is strong demand as well as increased taxes and the price of land.
Speculation spread through the markets following recent comments made by renowned economist Nouriel Roubini about an impending housing market train wreck of global proportions, with housing markets in 18 countries vulnerable to meltdown. Roubini correctly predicted the US housing bubble and its collapse. He has said the affected overheating housing markets include Turkey.
The cost per square meter of new İstanbul housing projects begins at TL 1,000 to TL 1,500. On eastern and western outskirts of the city — the directions in which the city is expanding — these numbers could even double. Market players say these prices are affordable thanks to relatively low mortgage interest rates and strict banking discipline, which means that financial institutions are cautious when granting loans.
Experts acknowledge that the 2007-2008 global financial crisis was triggered by the burst of a US housing bubble. Observers are now asking whether high property prices in emerging markets – with relatively weaker growth rates in recent years – will evolve into bubbles that will eventually pull down their economies.
“In emerging markets, the housing bubbles are being formed by efforts to manipulate currency rates, high inflation, lack of other investment alternatives and rapid urbanization whereby housing demand is outstripping supply,” Roubini has noted. However, according to Turkish contractors, there is no risk to the balance between supply and demand in the country. People may find that housing prices are relatively higher in certain parts of İstanbul but that this is basically due to increased construction costs stemming from demand for higher-quality houses.
One factor that experts say will help Turkey’s real estate markets maintain dynamism is a current government urban transformation project. A recent meeting in İstanbul called Turkey Design Mission 2013 valued the anticipated countrywide urban transformation projects at as much as $400 billion. Construction firms state that 70 percent of the current housing units in İstanbul, in which 55 percent of its 15 million residents reside, were constructed in the past 30 years. They say it is likely the city will continue to similarly transform over the next few decades.
Despite this summer’s anti-government protests and low profit rates in housing, foreign investors, including the Singapore sovereign wealth fund GIC and US private equity giant Blackstone, have continued to buy Turkish retail properties over the past year.