A new look at the Turkish real estate market: domestic focus and price trends

A new look at Turkey's real estate market: rising domestic demand

Turkey's real estate market is entering a new era of domestic orientation. The Turkish real estate market has been undergoing significant changes in recent years, shifting from a foreign investor orientation to a focus on domestic demand. This transformation entails both challenges and opportunities for market participants, charting a new course for the residential real estate sector in Turkey.

According to a recent survey, 98% of all real estate transactions in Turkey are now conducted by nationals. This demonstrates a significant decline in interest from foreign investors, who used to play an important role in the market. Instead, there has been an increase in buying activity among the local population, which is helping to stabilize the market and reorient it towards domestic demand.

The reasons for this shift are varied. One factor is the growing prosperity of the Turkish middle class and the increasing affordability of housing for local buyers. In addition, the recent economic and political turmoil, as well as the depreciation of the Turkish lira, has reduced the attractiveness of Turkish real estate for foreign investors.

Slowdown in price growth

Despite the overall increase in real estate prices in Turkey, the pace of this growth is slowing down. Görkem Öğüt, CEO of Endeksa, notes that nominal real estate price growth has reached pre-pandemic levels. However, high inflation and rising construction costs give the impression of a slowdown in the market. According to official data, house prices in Turkey have increased by around 65% year-on-year as of May 2022. However, this growth was largely offset by high inflation, which exceeded 70% in the same period. In real inflation-adjusted terms, house price growth has been relatively modest.

Changes in the rental market

The rental market in Turkey is also showing signs of slowing price growth. Despite the removal of the 25% cap on rent increases and an increase in the consumer price index to 66%, actual rent growth was only 47% year-on-year. In real terms, this represents a 12% year-over-year decline in rents. The most notable decline was seen in Antalya, where prices fell by 26% in real terms after adjusting for inflation.

Investor caution

Current market conditions and economic uncertainty are causing many investors to be cautious. Some prefer to sell their properties and keep their money on deposit rather than risk low rental income in an environment of high inflation and slowing price growth. This sentiment among investors is also contributing to the observed slowdown in the rental market. Property owners are reluctant to raise rents for fear of losing tenants, resulting in lower real rents.
Experts believe that the current changes in the Turkish real estate market could have long-term implications for the sector and the country's economy as a whole. The transition to a more inward-looking market may lead to price stabilization and make housing more affordable for the local population. However, it could also mean a decrease in foreign capital inflows into the real estate sector, which could affect economic growth and the development of the construction industry.

Impact on the economy

In the past, the Turkish real estate market has been a key driver of economic growth, attracting significant foreign investment. A decline in interest from foreign investors could adversely affect the construction sector, employment and related industries. In addition, real estate has traditionally served as a reliable wealth preservation tool for Turkish citizens. Slower price growth and lower rental yields could undermine this function and affect the financial well-being of households.

Importantly, these trends are unfolding against a backdrop of global economic uncertainty and geopolitical changes. Turkey, at the crossroads between Europe and Asia, has always attracted international investors with its strategic location and fast-growing economy. However, current developments in the real estate market may signal broader economic shifts in the country, reflecting its changing role on the global stage and adaptation to new challenges.

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Conclusion

In conclusion, the Turkish real estate market is undergoing a period of transformation characterized by an increasing domestic focus, slowing price growth and changing investor sentiment. These changes create both challenges and opportunities for market participants, requiring adaptation to new realities. The future development of the sector will depend on many factors, including government economic policies, global economic trends. In order to successfully overcome the current challenges, real estate market players in Turkey will need to adapt to new realities and conditions. This will require flexibility, innovation and careful monitoring of the market situation.

• Real estate developers and builders will need to rethink their strategies and focus on the demand and preferences of domestic buyers. This may include developing more affordable projects that fit the middle class budget, as well as introducing new financial schemes and support programs.
• Realtors and real estate agencies will face the need to work more closely with local clients and better understand their needs. Personalized approach, use of digital technologies and marketing innovations will be key success factors in the new environment.
• Investors, in turn, will need to diversify their portfolios and look for alternative opportunities to generate returns. This may include investing in commercial real estate, development or related sectors such as construction and finance.

The role of government policy

The Turkish government can also play an important role in easing this transition and supporting the real estate market. Measures to stimulate domestic demand, such as preferential mortgages, tax incentives for homebuyers and subsidy programs, can help make housing more affordable for the country's citizens. In addition, investments in infrastructure, urban development, and incentives for affordable housing can help grow the market and create new opportunities for developers and investors.

Despite the decline in foreign investor interest, international cooperation and the attraction of foreign capital will continue to play an important role in the development of the Turkish real estate market. The country can benefit from strengthening ties with partners from the region and other countries by attracting investment and real estate expertise. In addition, promoting Turkey as an attractive place to buy a home or invest in real estate internationally can help maintain the interest of foreign buyers and investors, even as the focus shifts to the domestic market.

Regional market characteristics

When analyzing trends in the Turkish real estate market, it is important to consider regional characteristics and differences between major cities and provinces. Demand, price dynamics and buyer preferences can vary significantly depending on location.

• Stambul
  As Turkey's largest city and financial center, Istanbul has traditionally been one of the most active and expensive real estate markets in the country. Despite a general slowdown in price growth, demand for housing in Istanbul remains strong, especially from the middle class and young professionals.
• Ankara
  As the capital and administrative center of Turkey, Ankara is also an important real estate market. There is a steady demand for housing here from civil servants, military personnel and employees of international organizations.
• Mediterranean Coast
  Popular resort regions such as Antalya, Mugla and Aydın have traditionally attracted a significant number of foreign buyers and investors. However, with declining interest from foreign customers, these markets may face additional challenges and require a refocus on domestic buyers.
• Eastern regions
  In the eastern regions of Turkey, such as Eastern Anatolia and Southeastern Anatolia, the real estate market is less developed and demand is concentrated mainly on affordable housing. Here, focused efforts to develop infrastructure and stimulate economic growth will be required to boost the real estate market.

Real estate developers and builders should take these regional differences into account when designing their strategies and projects. Understanding local preferences, demographic trends and economic conditions will be critical to market success.