Attractive climate, rich cultural heritage and history make Turkey an attractive real estate investment destination. However, will this market trend continue in 2024? We tell you about the current economic conditions and trends in the Turkish real estate market

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Attractive climate, rich cultural heritage and history make Turkey an attractive destination for real estate investment. The government is actively supporting the market through various programs, including a citizenship program that attracts foreign investors. However, will this market trend continue in 2024? It is important for investors to understand current economic conditions and trends in order to make informed decisions about their investments.

Let's talk about the current economic trends and examine the feasibility of investing in Turkey's real estate market in 2024.

Turkey Real Estate Market Analysis

According to the Central Bank's House Price Index (HPI), house prices in Turkey increased by 32.39% year-on-year in April 2021, while in Istanbul the figure was 28.56%. During the same period, inflation reached 17.14%, while the Turkish lira depreciated by 19.6% against the US dollar and the interest yield on an annual deposit amounted to 17.6%. 

After a long period since 2017, when house price growth lagged behind the yields of alternative investment instruments and inflation, it exceeded both inflation and deposit interest rates in the first half of 2021, repeating the trend of the previous year.

Total loans in Turkey decreased by 5.07% in the first half of 2021 compared to the same period in 2020, when they increased by 4.03%. This decline was largely due to an increase in mortgage rates. In June 2021, mortgage loans accounted for 7.1% of total loans.

Turkey's economy faced major challenges in 2023 due to high inflation, the continued depreciation of the Turkish lira and the earthquake that hit the south of the country. Nevertheless, the real estate sector remained an important part of the economy. Real estate values rose 37.52% year-over-year despite a 14.3% decline in sales volumes. Istanbul maintained its leading market share with 15.9%.

There has been a significant increase in real estate prices since the beginning of 2023, reaching 109% by August. The average price of a home in Turkey rose to approximately $100,316. This increase was one of the sharpest recorded by the Central Bank of Turkey: at the end of summer 2022, the average price was $81,510 and the annual price increase was 203%. 

Despite the price increase, the housing market in Turkey continues to expand. In the first seven months of 2023, 1.6 million real estate transactions were concluded, of which 675 thousand were residential property sales. In addition to this, 943,000 plots of land were sold, including construction sites, agricultural areas and office space.

Residential real estate in Turkey: market trends

Decrease in the pace of construction

The number of properties under construction in Turkey has decreased significantly. According to the Turkish Statistical Institute, the number of construction licenses issued has dropped from 1.4 million seven years ago to 520,000 in 2023. 

One of the reasons was the earthquake in February 2023, which caused many companies to switch to rebuilding the affected areas. Now most of the residential real estate is secondary housing as new homes become unaffordable for locals, which can lead to price increases and housing shortages.

New home sales are declining

In Turkey, the sale of a new house is the first sale of a house bought on the basis of a land ownership contract. From 2013 to 2021, new home sales averaged 48,758 units per year, reaching a high of 511,682 in 2019 and a low of 461,523 in 2021. 

Total home sales in 2021 were down 21.4 percent from 2019, but mortgage sales were up 25.3 percent. New home sales as a share of total sales fell to 12-15% between 2014 and 2021.

High inflation

Turkey's annual inflation rate accelerated to 64.8% in December 2023, the highest since November 2022. In comparison, inflation was 62% in November 2023. While this rate is slightly below market forecasts of 65.1%, it still significantly erodes people's purchasing power and increases construction costs. 

High inflation also leads to higher prices for construction materials and services, making the realization of new projects less attractive for developers.

Rising interest rates

As inflation rises, Turkey's central bank is forced to take measures to curb it, resulting in higher interest rates. 

In January 2024, Turkey's central bank raised its benchmark rate by an expected 250 basis points to 45%. High interest rates are slowing economic activity, reducing demand for mortgages and therefore housing. 

Overview of the residential real estate market in Turkey

Turkey attracts investors due to its developed transportation infrastructure, tourism and convention industry. Istanbul, located at the crossroads of Europe and Asia, has become an important center for investment in Turkey. However, high interest rates and economic restrictions have had a negative impact on the economy, resulting in lower real estate prices and a depreciation of the Turkish lira.

In recent years, renovation properties, especially in the central areas of major cities, have become the most relevant type of housing in Turkey that has attracted the attention of investors. 

Properties in the central areas of cities such as Istanbul, Izmir and Ankara have a higher demand for short-term rentals among tourists and expats, which provides a return on investment. 

The safety of renovated properties also plays an important role. Such properties undergo modernization and renovation to meet modern standards of safety and comfort, including improving engineering systems, upgrading electrical wiring and water supply, and installing new security systems. Unlike new buildings, renovated buildings are under special control of the state, which closely monitors the quality of the work performed. This enhanced control guarantees high standards of safety and reliability.

Turkey is located in an earthquake-prone zone and the new building regulations require strict earthquake resistance standards. Renovated buildings are often retrofitted to meet these standards, providing additional safety for the occupants. The renovation process utilizes modern building materials and technologies, which not only improves the aesthetic appearance of the properties, but also enhances their durability and resilience.

The shift in demand from new buildings to renovation is due to several factors. In urban centers, especially in Istanbul, there is a severe shortage of available land for new developments, making renovation of existing buildings a more preferred option for developers and investors. 

Renovation is often more cost-effective than new construction, especially given the high cost of land in central areas. This allows investors to realize higher returns for a smaller initial investment. 

Will real estate prices rise?

Experts believe that it is unlikely that prices will decrease due to high land and construction costs, which do not depend on inflation, as well as due to the shortage of plots for residential construction.

Increased demand for quality and safe housing also contributes to the growth of construction costs. Experts note that the shift in consumer preferences towards high quality housing increases the costs of construction companies. 

It is important to note that the country is actively attracting foreign direct investment and implementing infrastructure projects, which will lead to a boom in the real estate market in the future. The government is also introducing tax incentives, simplified processes for foreigners to buy property and citizenship by investment (CBI) programs to stimulate the market.

At the same time, price increases will not be uniform across Turkey. Significant price increases are expected to occur in regions with high tourist appeal, such as Istanbul, Antalya, Bodrum and Mersin. In less developed and rural regions, prices may even decrease slightly.

Turkey's real estate market forecast for 2024: prospects and expectations

Turkey's economic outlook for 2024 presents a set of challenges and goals. In the second half of 2023, Turkey moved to tighter monetary policy, including significant rate hikes, which is expected to reduce domestic demand from the second quarter of 2024, potentially slowing economic growth.

Despite this, the Turkish government is optimistic, emphasizing budgeting and sustainable growth. In 2023, GDP growth was over 4%, exceeding expectations. However, earthquakes in early 2023 caused significant damage requiring extensive reconstruction. The housing sector could benefit if housing loan rates, currently around 40%, fall below 30%.

Thus, Turkey's economic landscape in 2024 shows cautious optimism.  Despite economic headwinds, the real estate market is showing a willingness to recover. 

Investors are advised to keep a close eye on macroeconomic factors, market trends and regional developments. With the dynamic changes in Turkey's real estate market, a strategic approach and in-depth analysis will help maximize the benefits of investing in this market.

The government's focus on inflation control and economic growth indicates a commitment to long-term stability and growth, balancing the effects of tight monetary policy and external economic factors.

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