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Cities of Dreams 9 mai 2012

Posted by Acturca in Economy / Economie, Istanbul, Turkey / Turquie.
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The Wall Street Journal Europe (USA) May 9, 2012, p. 20
The Journal Report: Turkey

By Justin Vela, Istanbul

Mass home ownership has been a political success story, but is the bubble about to burst?

Turkey’s economic growth has made headlines for a decade, and continues to be strong — the economy expanded by 8.5% in 2011.

But the boom has brought worries of overheating, instability and a potential bust. And nowhere are those worries heard more loudly than in the booming real estate sector, which stands as a metaphor for the country’s aggressive growth.

The demand for property in Turkey is massive. On average, 550,000 to 600,000 new residential units have been built per year for the past nine years, says Erste Bank analyst Mehmet Emin Zumrut.

The expansion of the home-owning middle class is a success of the AKP.

Residential unit sales rose by at least 17% in 2011, mainly off deferred housing demand from the year before, Mr. Zumrut said in an email. « We believe that growth in residential unit sales was far greater than 17% in 2011, as pre-sales were higher than deliveries in new projects last year. »

The demand for housing is backed by interest rates that have remained low, despite efforts to stem loan growth — largely fueled by short-term inflows of cash from abroad — and concerns about overheating. In 2011, the volume of housing loans increased to about $41 billion, from about $34 billion in 2010, according to Isik Gokkaya, chairman of the Istanbul-based Association of Real Estate Investment Companies.

Population growth of 1.3% a year helps fuel demand. Other factors include increased urban migration, diminishing household size and a return to pre-crisis levels for housing prices.

Turkey’s Housing Development Administration (TOKI) backed the demand by building thousands of housing units across the country. The ruling Justice and Development Party (AKP) even allowed TOKI, which is directly connected to the prime minister’s office, to build on Treasury Department land, as well as eliminating bureaucratic red tape to foster the boom.

« Just like any person on earth, owning a home is a Turk’s biggest dream, » says Atilla Yesilada, a partner at Istanbul-based research firm Global Source Partners. « TOKI has largely granted them that, » he says, adding that the expansion of the home-owning middle class was a success of the AKP, which in June 2011 was re-elected to a third term with a nearly 50% mandate.

Turkey’s infamous inflation once made getting the credit to buy housing virtually impossible. For most people the only way to own property was to inherit it, Mr. Yesilada says. Under the AKP, the Turkish lira has stabilized and international investment banks are willing to issue long-term lira debt, which Turkish banks use to finance mortgage loans.

« Lower inflation and the fall in the volatility of the Turkish lira makes it more attractive for institutions to issue lira-denominated assets, » Mr. Yesilada says, adding that banks have an adequate forecast for interest rates. « There is stability and the mortgage business has boomed in the last five years. »

Foreigners add to the demand, with property sales to foreign nationals generating an income of more than $2 billion in 2011, according to Mr. Gokkaya. Once legislation is passed that will make it easier for foreigners to buy real estate, foreign direct investment in the sector could increase to $5 billion a year, he says.

Yet the property boom, much like Turkey’s fast-paced growth of recent years, has reached a precarious point.

The massive growth has, industry observers say, caused a real estate bubble — at least in Istanbul — and adds to the chances of instability, with economic growth already forecast to slow to between 1.3% and 5% by the end of 2012. All analysts interviewed by The Wall Street Journal said the emerging property bubble is concentrated, for the moment, in Istanbul, especially in luxury housing. Other areas of the country that don’t provide the same returns aren’t as affected.

In March, the prices for residential sales for existing homes in Istanbul increased 10.65% on the year, according to REIDIN, a real estate consultancy focused on emerging markets. Last month, REIDIN described the real estate sector in Turkey as showing « a dangerous mix of simmering crisis symptoms ».

« It’s like a balloon, » says Ibrahim Yilmaz, an independent real estate agent who helps foreigners buy and rent property in Istanbul. « It keeps going up. [Property owners] feel if they sell they will lose money. »

The country’s economic growth is very much dependent on the construction sector, which grew 11.2% in 2011, according to the Turkish Construction Industry Center, so even as prices increase dangerously, the government and central bank — intent on sustaining growth — appear unlikely to do anything to damp demand.

Mr. Yesilada says the government also wants to boost construction to fight unemployment, which was 10.2 % in January, according to TurkStat, the country’s official statistics agency. Yet imports used for construction have fueled Turkey’s surging current account deficit, which is currently estimated to be about 10% of GDP. « You are sucking in resources from the rest of the world to pile up stones, » Mr. Yesilada says, warning that the real estate boom could « end in tears. There is not the foreign exchange to pay that bill, » he says. « We need savings to flow into the financial system rather than residential property. »



Property Made Easy

Turkey has made major changes to laws governing the sale of real estate to foreigners this year. The changes make it easier for foreigners to purchase property in Turkey, and are expected to attract a massive amount of investment to the country, despite concerns that a bubble is being created.

In 2011, property sales to foreigners were about $2 billion, a decline from the $2.5 billion the year before.

Sales are now expected to surge following the amendment of a reciprocity law that was limiting foreign investment in the sector.

« We anticipate that these new regulations, which facilitate property acquisition by foreign nationals in Turkey . . . will come into force in the second quarter of 2012, » says Isik Gokkaya, chairman of the Istanbul-based Association of Real Estate Investment Companies (Gyoder).

Now the reciprocity law is amended, Turkey could attract as much as $5 billion in annual capital inflows to the real estate sector, he says.

Currently, most real estate purchases by foreigners are made by investors from Germany and the U.K., according to Erste Bank analyst Mehmet Emin Zumrut.

The changes mean, however, Turkish real estate will be open for direct investment from Russia, Central Asian countries, and the Gulf states.

Another recent change in legislation has made it possible for foreigners to purchase property in Istanbul’s central Beyoglu district — considered a military area. Before that law was amended, foreigners who wanted to own property in Beyoglu were forced to skirt the law by having a Turkish citizen buy property on their behalf, or by establishing a local corporation.

« Now as a [foreigner] you can just go and buy an apartment, » says Ibrahim Yilmaz, an independent real estate agent who helps foreigners purchase and rent property in Istanbul.

The Turkish government sees sales of real estate to foreigners as a way of gaining foreign direct investment and financing for the public budget, both in the form of taxes and property purchases.

Another recent amendment includes the ability to buy 4.1 million acres of deforested, or 2-B, land owned by the treasury department, which until recently had been off-limits to developers.

Opposition parties had opposed the sale of the land for city expansion, arguing that the infrastructure in many Turkish cities is already overstretched.


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