No real estate bubble in Turkey, experts say
The construction sector and home loans have experienced rapid growth, but experts say there is no risk of a bubble.
By Esra Serez for SES Türkiye in Istanbul -- 12/09/11
Turkey's major cities have been witnessing a housing construction boom, backed by robust demand in the real estate markets and favorable home loan conditions.
Zorlu Centre is under construction in Istanbul’s Zincirlikuyu district .Turkey's major cities are experiencing a housing construction boom. [Reuters]
It is not uncommon to see advertisements in Istanbul offering easy credit terms for home loans . Ads saying "If you own 2,500 Turkish Liras [about 1,000 euros)] you can buy a house in the city centre," or, "Get your deed and your new apartment now, start paying next year," are all over the city.
While such slogans may remind one of the United States' subprime mortgage crisis in 2008, Turkish analysts find few parallels in this real estate market.
"Offering easy credit terms is a way for construction firms to sell their stock," Özgül Erdoğan, the marketing co-ordinator of Turyap, a leading real estate company, explained.
Erdoğan says any mortgage crisis is unlikely. "Existing regulation and the increase in house loan interest rates have driven Turkish people to behave precautiously and make proper calculations before buying a house with a loan," she said.
"It would not be right to say [a bubble is occurring in Turkey's real estate markets]," Müjdat Orcan, personal loans and customer management director at Ing Bank's Turkey branch, told SES Türkiye recently.
Orcan said that unlike in the US, Turkish authorities regulated financing in the real estate market in 2007, when the volume of such loans was still comparably low.
Turkey's Banking Regulatory and Supervisory Agency (BRSA) decided in January of this year to limit the amount of home loans to a maximum of 75% of the estimated value of the house itself.
Restrictions, however, did not reduce demand for home loans. Volume reached 71.7 billion liras by the end of July, marking an increase of 1.8% compared to the previous month and about 18% since the beginning of the year, BRSA figures show.
The figure was about 27.8 billion liras at the end of July 2007, which translates to an increase in home loans by 158%.
Turkey's loan to gross domestic product ratio is 7%, according to Central Bank data, which Orcan said ranged between 5% to 10% in other emerging countries such as Mexico, Brazil and Russia. Meanwhile, the EU and US averages are around 40% and 75%, respectively.
"Considering these figures, we can say we are just in the beginning and that there is much progress to be made [in house loan markets in Turkey]," Orcan said.
The loan market started to develop between 2004 and 2006, Erdoğan explained. The volume of home loans prior to this period was insignificant, given very high interest rates and existing regulation. Thus, figures showing a rapid increase in home loans in the last decade can be attributed to the immaturity of related markets in Turkey, rather than to the formation of a bubble in the sector, experts said.
Özgür Altuğ, chief economist at the BGC Partners in Turkey, notes that the rate of increase in home loans has fallen in the past couple of months, indicating a further possible slowdown.
Altug attributes this to a slight increase in interest rates, a 25% deprciation of the lira in the past nine months and uncertainty in global markets, but notes that this relative slowdown does not indicate a collapse in mortgage loans.
Construction was the second largest growing sector in Turkey during the first quarter of 2011. Turkey's Housing Development Administration (TOKİ) has built 500,000 houses since 2003 and is set to construct that another 500,000 by 2023, the 100th anniversary of the Turkish Republic, Prime Minister Recep Tayyip Erdoğan said in a speech in March.