Located in the heart of the construction, real estate sector in Turkey, serves as barometers of the economy as the changes in prices affect decision-makers in macro- economic level and the changes in economic life are important for investors who want to invest in buying real estate when it is necessary to interpret and put it forward.
Property investment is among the most invested in its sector for citizens in Turkey. The realization of Turkish citizens' savings through real estate investment continues as a tradition that lasts for generations in investment decisions. Having residence in Turkey, is considered one of the most important factors affecting the cost of living of households in addition to being an element of fortune. The price of a real estate is different from the sum of the services it provides.
Residential Investment Traditional Investment Tool in Turkey
The real estate sector in Turkey is reliable from all aspects, is robust and an investment tool that have become a traditional investment type and affects many investors who have middle income real estate requirements in line with Turkey's growth figures, as a result of the increase in national income, providing improvement in income distribution, positive expectations and successful overall risk management.
One of the most important problems encountered in the valuation of housing prices is the fact that the houses with the same characteristics differ in price in different districts of the same province because the houses do not have a “homogeneous’’ structure. This situation is observable even in different parts of the same district. Criteria such as being close to the sea, seeing the Bosphorus, being on the southern front for sunshine, proximity to parks and schools can cause serious differences in prices.
Basic Dynamics in Economics
Looking at the value of a single asset in a given period observed in the prices of all other asset investments and mentioning that it is too high or falling does not provide a good analysis for the investors. According to the science of economics, the price of a good occurs at the intersection of supply and demand; in other words, when the goods and services come to the market, the demand for it is what the price is. While this is the definition of an environment in which full competition conditions are assumed in the science of economics, there are many side factors that affect price in real life. In the housing market, prices are formed according to similar prices or according to their special conditions.
For the last few years, there has been speculation that there are artificial prices, balloon prices or swelling pricing around the world, from housing prices to gold prices, from oil prices to stock prices. In contrast to this, which speaks about the high prices, it can be said that extremely low pricing or cheap price can be said. According to the conditions of the time and expectations, prices that are considered normal in housing prices are changing. One of the most important examples of this is observed in oil prices. A few years ago, oil prices, which were at $ 20, were a normal value, while today $ 60-70 levels are considered normal.
Regardless of the sector in the economy, because of the excessive price or bubble pricing in prices, it is not sufficient to look only at the course of prices and trends prevailing in the sector. However, based on the “value concept’’ adopted by all sectors, sector-based inferences are adopted by market analysts.
Factors Affecting Supply and Demand in Housing Sector
In the construction sector and in the heart of the housing market, prices are formed, while the amount of housing supplied according to the demanded housing responds in a delayed course. For this reason, the most important factor affecting prices in the housing sector in Turkey and in the world, is shown to be the imbalances and shocks from demand. The following points regarding the increases or decreases in demand are important;
- Increasing demands will increase the potential of making profits by increasing the rental values along with the immovable property prices. In such a case, investors' interest in the housing sector is increasing.
- In case of rising demand, the increase in occupancy rates due to the delayed response of the supply of housing, rents and prices cause an upward trend in the sector.
- With supply responding to demand later, reductions in occupancy rates begin to occur.
- Since housing supply will increase with the increase in housing supply, rent and sales prices decrease in the downward direction. This does not mean that prices have been reduced at nominal levels, but unpaid periods occur in rental income due to increased market availability of rental housing in the sector. (In addition to the alternative cost for the owners of the houses waiting to be rented, fixed costs of the housing are added.) In order to prevent the fall of nominal prices, credit supports for the housing sector begin to come.
- Decreasing housing prices and rents, on the other hand, reduces profitability and reduces the arrival of new investors in the sector.
- If price declines occur in other economic asset prices, the downward impact on demand will further increase.
The above-mentioned conditions have a significant impact on the rate of increase in demand in the housing sector and the upward trend. In the event of a decline in demand, the following points are important for the processes to be experienced;
- The vacancy rate and the period of vacancy are the waiting times after the immovables are placed on the market by rent or sale. With the decrease in demand, the vacancy rate and residence time will increase.
- The fact that vacancy rates are on an upward trend throughout the real estate sector will lead to decreases in sales and rental prices.
- When low rental prices and sales prices reach a certain point, demand will revive and new equilibrium amounts and new equilibrium prices will be formed in the market.
Prices of Housing in Istanbul and in Turkey
To see if there is ballooning and an excessive rise in prices in the real estate sector in particular Turkey and Istanbul, Turkey needs to look at supply and demand in the housing sector's overall structure, and its basic dynamics. When we look at the data of standard costing in housing sector of Turkey in 2019 and main factors affecting the price, the following points stand out;
- According to Turkey Statistical Institute (TUIK) data; housing sales in Turkey decreased by 48.6 percent compared to the same month of the previous year in the month of June 2019 and become 61355. The main reasons for the decline in housing sales, were the rise in housing loan interest rates that experienced in Turkey's economy and the depreciation of the Turkish lira.
- In the housing sector, cheap loans provided by state banks and loans made by contractors are experiencing serious increases in sales. Decline in mortgaged sales seems to be partially covered by checks, promissory notes and cheap loans provided by state banks.
- The rise in the dollar exchange rate and record rates in credit rates also affect the housing purchase of the citizen. As a result of the contraction experienced by the municipalities, the housing sector's efforts to balance the supply can be seen in the number of construction licenses that were given and the effect of increasing costs.
- Looking at the housing sales data for June 2019, we see that sales to foreigners continue to increase. According to TurkStat's June data, housing sales to foreigners increased by 30.5 percent compared to the same month of the previous year and was realized as 2 thousand 689. The sector representatives agree that house sales to foreigners will continue to increase throughout 2019.
- In June 2019, Istanbul ranked first in terms of housing sales to foreigners with 9,9 sales. Istanbul is followed by Antalya with 668 houses, Ankara with 134 houses, Yalova with 123 houses and Bursa with 122 houses.
- The basic dynamic that affected the sales of housing to foreigners was the reduction of the opportunity to pass Turkish citizenship by investing in foreigners from $ 1 million to $ 250 thousand. In addition, the introduction of value added tax exemption has led to significant increases compared to previous years.
- While the cost of high-priced project houses is increasing, the downward or horizontal trend in prices is expected to continue, as there are still vacancies in stock. The decline in policy rates by 4.25 basis points in July 2019 indicates that domestic demand will start to revive in housing demand.
- The housing prices in Istanbul and in Turkey, price increases are not expected for a while in 2019 but, however, it should be noted that new projects and new housing production will be at new prices and current low-price projects are offered at base prices.
In Turkey, the housing market for domestic investors with macroeconomic measures as provided in the supply and demand seems to be the situation in the rebalancing process. After the interest and exchange rate fluctuations experienced, the demand and supply structure of the sector tended to reach a new balance in time with the measures and incentives taken by the government. 2019 and beyond are expected to be better for investors.