Turkish real estate market: the paradox of rising prices and falling purchasing power
The Turkish real estate market is going through a difficult period: nominal prices are rising, but purchasing power is falling. Let's look at the reasons for this paradox and its impact on sellers, buyers and the country's economy as a whole.
Prices are rising and purchasing power is falling: the paradox of the Turkish real estate market.
In recent years, the Turkish real estate market has shown a very contradictory picture. On the one hand, nominal housing prices continue to rise, creating the illusion of prosperity. On the other hand, when adjusted for inflation, the real value of real estate significantly decreases. This paradox has a significant impact on both buyers and sellers, and on the country's economy as a whole.
Nominal price growth: impressive numbers.
As of July 2024, the average price per square meter of housing in Istanbul, Turkey's largest city, reached 47,299 Turkish Liras (about $1,430). This is 35.3% higher than a year ago. At first glance, such growth may seem very impressive and indicate a thriving real estate market. However, upon deeper analysis, the situation does not look so optimistic.
Real Price Decline: RPPI
The Real Real Property Price Index (RPPI) for Turkey showed a 14.9% decline in real terms by the end of May 2024 compared to the same period of the previous year. This means that despite nominal growth, purchasing power in terms of real estate has actually declined. In other words, even though nominal prices are rising, buyers can purchase fewer square meters for the same amount of money due to high inflation.
Regional differences
It is interesting to note that the decline in real estate prices varies from region to region. For example, in Istanbul, the economic center of the country, the decline was 14.6% in real terms. At the same time, in Ankara, the capital city of Turkey, the decline was less pronounced — only 0.8%. These differences can be attributed to local economic conditions, demographic factors and real estate market peculiarities in each region.
Impact on real estate sales
High nominal prices and difficulties in obtaining mortgage loans have had a negative impact on real estate sales in Turkey. Between January and March 2024, residential real estate sales declined by 53% year-on-year. This sharp drop indicates that many potential buyers either cannot afford to purchase property at current prices or prefer to postpone their purchase in anticipation of more favorable conditions.
Prospects for the real estate market
Experts note that the fall in sales may lead to a further decline in real estate prices, as sellers will be forced to adjust their expectations in line with market realities. This may create more favorable conditions for buyers in the long term, but the situation remains challenging in the short term.
Economic context
The situation in Turkey's real estate market is closely linked to the country's broader economic challenges, including high inflation and the instability of the national currency. The government and the Central Bank of Turkey are taking measures to stabilize the economy, but their effectiveness remains questionable. Until the country's economic situation stabilizes, the real estate market is likely to remain in a state of uncertainty.
Opportunities and risks for investors
For potential buyers of real estate in Turkey, the current situation presents both opportunities and risks. On the one hand, declining real prices may make some properties more affordable, especially for foreign investors with access to hard currency. On the other hand, economic instability and uncertainty may increase the risks of investing in Turkish real estate, especially in the short to medium term.
Impact on the construction sector
The paradoxical situation in the real estate market is putting pressure not only on sellers and buyers, but also on the construction sector in Turkey. The decline in sales and real prices may lead to a reduction in construction and the postponement of new projects. This, in turn, may negatively affect employment in the construction industry and related sectors of the economy.
The role of public policy
Government policy plays an important role in the current situation. The Turkish government can take measures to stimulate the real estate market, for example, by subsidizing mortgage rates or providing tax incentives for buyers. However, the effectiveness of such measures will depend on the overall economic situation in the country and the government's ability to control inflation.
Long-term prospects
Despite the current difficulties, many experts remain optimistic about the long-term prospects of the real estate market in Turkey. The country has significant potential for economic growth, and its geographic location and cultural heritage continue to attract foreign investors and real estate buyers. As the economy stabilizes and inflation falls, the real estate market may regain its attractiveness.
Conclusions
Turkey's real estate market is in a difficult situation characterized by a paradoxical combination of nominal price growth and declining purchasing power. This paradox creates problems for sellers, buyers and the country's economy as a whole. High inflation and economic instability are exacerbating the situation, leading to falling sales and pressure on the construction sector.
Nevertheless, the long-term outlook for Turkey's real estate market remains promising. As the economy stabilizes and inflation falls, the market may regain its attractiveness to investors and buyers. Government policies can also play an important role in supporting the real estate market and stimulating economic growth. For potential buyers and investors, the current situation in the Turkish real estate market presents both opportunities and risks. Careful analysis of the local market, economic conditions and long-term prospects is key to making informed decisions.
Ultimately, the future of Turkey's real estate market will depend on the country's ability to overcome the current economic difficulties and create a more stable and predictable environment for investors and buyers. With effective government policies and a gradual economic recovery, the Turkish real estate market could once again become an attractive investment and home buying destination.
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