Every year the demand for housing in Istanbul, the most densely inhabited city in Turkey, grows in line with its continuously expanding population. The rising demand for housing is met by the existing housing stock plus new housing production. Residential property prices in Turkey rose strongly in 2014, gaining more than 16 percent in nominal terms. Real price gains exceeded 7 percent, up from 6 percent recorded last year. While house prices in Istanbul fell back 4% in 2014 over the previous year, Turkey as a whole saw an increase of 0.7%.
Factors contributing to the fall in housing sales include:
• Rising sales prices coupled with increased construction costs
• Rising mortgage interest rates
• Economic and political developments in the country
• A failure to analyze the demand for housing production correctly.
Taylor Scott International market review , forecast a continuation of nominal and real home price appreciation over the next two years. Funding conditions are likely to remain supportive for the housing market in the near term while overseas buyers’ interest in Turkish real estate will continue to support the market. The strong demand from Turkey’s young and growing population will remain the key driver of housing market activity as over 50% of the population is under 30 years old ,consisting the upcoming demand for the housing market . Economic and financial conditions in the first half of last year weighed on the Turkish housing market, pushing the average mortgage interest rate to 13.6 percent in April 2014, up from 8.3 percent at the low point in June 2013, and mortgage lending growth started to decelerate. According to Taylor Scott International’s analysis of house purchases completed in 2014 in terms of payment method, mortgage purchases declined by 18% compared to 2013.Mortgage interest rates had been trending down since April 2014, dropping to 10.8 percent by mid-February 2015, the review says, and lending for house purchases had picked up in autumn, although by December growth rates were still twice as low as in 2013, at 13.5 percent.
Construction Activity and Costs
The total construction activity (measured by the area covered by new Building Permits) throughout Turkey in the first 9 months of 2014 was 40% respectively higher than in the corresponding period of 2013. Out of the total ,a 74% of the construction area covered by building permits granted in the first 9 months of 2014 in Turkey was for residential buildings, compared to a figure of 55% for Istanbul. In Istanbul the total construction activity ( measured by the area covered by new Building Permits) by an impressive 30% over the previous year.
In the first 9 months of 2014, building permits were granted for about 122,000 residential units in Istanbul, while occupancy permits were granted for a further 75,000. The number of purchases of newly built homes was 73,630 in the same period. Even if one assumes that all the houses purchased had been granted occupancy permits within 2014, it is clear that production outpaced purchases. In addition, it is striking that the number of units granted permits exceeds the anticipated number of newly built house sales for the coming year.
The Building Construction Cost Index showed a year-on-year rise of 10.68% in 2014. The rise in land prices and construction costs in Istanbul went hand in hand with a rise in purchase prices. This situation was reflected in the house price indexes, especially in the second half of the year. Cost increases in response to a rise in demand for housing in Istanbul from middle and lower-middle income groups have led to a reduction in housing production in this segment. For this reason, housing sales saw a decline even though the total construction area that was granted building and occupancy permits increased.
Land price-related locational disparities in housing production costs are evident in Istanbul. This has an impact on house purchase regions.
Analyzing housing purchases in Istanbul in 2014 from the perspective of location, only 14% took place in districts around the Central Business District in the city center. The restricted supply of new housing units in these districts caused by a lack of available vacant land and expensive land prices means they command very high purchase prices. For this reason most house purchases (86%) took place in other districts, where housing costs are lower and supply is higher.
It is noteworthy that while the volume of house purchases declined in 2014, sales to foreigners rose by 56% in Turkey as a whole, and by 128% in Istanbul. 35% of sales to foreigners took place in Antalya, 29% in Istanbul, and 12% in the provinces of Aydin and Mugla. This data demonstrates that sales to foreigners are concentrated in the Mediterranean and Aegean coastal regions. In Istanbul. 5.4% of total house purchases in Istanbul were to foreigners.
As a conclusion the director of engineering and property appraisal at Taylor Scott International , Mr. Kosta Kioleoglou has stated that Taylor Scott International expects domestic demand to rebound in 2015, supported by more accommodative monetary conditions and a boost to real incomes due to falling headline inflation on the back of lower oil prices, supporting demand for residential properties. Same time the positive dynamics of sales to foreigners continues, creating a positive view for the market in 2015.