The number of tenants is growing in Turkey, just as the housing surplus is growing

Economist Naki Bakir described the situation in the Turkish real estate market in his column for the newspaper Dünya today. In Turkey, over the past ten years, almost 2 million houses have accumulated in which no one lives, and the number of people living in rented houses has reached 23 million. Rising construction costs, which exceeded inflation twice, raised prices, narrowing the possibilities of the middle class to buy a home.

Despite the rapid growth in demand for housing in recent years, the real estate market is experiencing one of the quietest periods due to the price bubble and high interest rates on loans. The number of people living in rented homes is approaching 23 million, and over the past ten years there have been almost 2 million homes awaiting sale after obtaining permits for use and initial sale.

The lull in the construction industry, which has been the engine of the economy for many years, is due to a sharp increase in material costs, which raised housing prices, while incomes did not grow in parallel, and the middle class, limited by high interest rates, began to use mortgages less.

7.3 million families are forced to rent housing

According to the study “Family in Numbers” conducted by the Turkish Statistical Institute (TÜIK) last week, the share of families owning housing fell from 60.7% in 2022 to 56.2% in 2023, and the share of tenants increased from 27.6% to 27.8%.

It turned out that 15.1% of households do not own the housing in which they live and do not pay rent, and 0.9% live in office apartments. Thus, 7 million 313 thousand 994 families are in forced rent, which, with an average household size of 3.14 people, is approximately 22 million 965 thousand 942 people.

Earlier, Turkish Finance Minister Mehmet Shimshek said that the restriction on rent increases by 25% is likely to be lifted.

“I see no reason to maintain the 25% rental limit, it is very likely that the restriction will not be continued,” he said on the TRT Haber TV channel.

This means that in the near future, tenants may face an increase in the cost of renting a home. The current measure limited property owners to increase rents above 25%, but now they will be able to set higher prices.

Mortgage loans are becoming unaffordable

The average annual simple interest rate on mortgage loans in the banking sector increased from 11.9% in 2014 to 45% in April this year, and in the first four months of this year the average rate was 42.6%. The maximum limits of mortgage loans set by the Agency for Regulation and Supervision of Banking Activities (BDDK) range from 50% to 90% of the sale price, depending on the class of real estate.

However, banks satisfy loan applications in a much smaller volume. Monthly mortgage interest rates range from 3.1% to 6.99%. Under the terms offered by the largest state-owned bank, for a 10-year mortgage loan of 1 million TL, the total amount of payments excluding expenses is 5.2 million TL.

Loans are practically frozen

Due to rising interest rates and a decrease in lending volumes, the volume of mortgage loans practically stopped in the first four months of this year. By the end of 2014, the volume of mortgage loans in the sector amounted to 125.8 billion liras, an increase of 253.4% (2.5 times) to 444.4 billion liras at the end of April this year. However, over the same period, consumer prices (TÜFE) increased by 791.1%.

The level of mortgage loans at the end of 2014, updated taking into account inflation, corresponds to 1 trillion 120.6 billion liras at the end of April this year. In other words, if mortgage loans had been growing at the rate of inflation, they would have reached this level. The gap between nominal mortgage loan growth and inflation has especially started to widen since 2021. In reality, taking into account inflation, the volume of mortgage loans decreased by 21.1% in 2021, by 26.7% in 2022, by 26.1% in 2023 and by 14.6% in the first four months of this year.

The average cost of 100 m2 of housing is 3.2 million TL

According to the Central Bank’s housing price index, despite the lull in the market, the average cost of 100 square meters of housing in Turkey in March 2024 increased by 52% over the past year and reached 3 million 188.5 thousand liras.

The average cost of selling a home in Istanbul was 4 million 601.3 thousand liras, in Ankara — 2 million 503.8 thousand liras, in Izmir — 3 million 672.7 thousand liras. Among the three major cities, the lowest price increase over the past year was recorded in Istanbul — 40.4%. The highest annual growth was observed in Ankara — 63.9%. In Izmir, the annual increase in house prices was 49.5%.

Despite the relatively low growth over the year, housing prices in Istanbul are significantly higher than those in the other two major cities. According to average house prices calculated using the stratified median method, the rate of price growth over the past year has slowed below the inflation rate, but home sales continue to decline.

Home sales with mortgages at the lowest level

In 2020, when the pandemic began, home sales approached 1.5 million, of which 38.2% (573,337) were sold using mortgages. That year, 469,740 sales were primary (“first-hand”). In 2023, the total number of home sales amounted to 1 million 225 thousand 926, of which 177 thousand 748 were sold using mortgages, which was 14.5%, and primary sales amounted to 379 thousand 542, which was 31% of the total number of sales.

In the first four months of this year, the total number of sales fell by 3.7% compared to the same period last year and amounted to 355,173 thousand, of which 34,693 were sold using mortgages, which accounted for 9.8% of the total number of sales. Especially in April, the total number of sales was 75,569, which is the lowest level in recent years, while nationwide the number of homes sold using mortgages was only 7,071.

Record growth in construction costs

The construction industry, which has long been the engine of the economy, is facing a glut of housing and depressed demand due to high interest rates, which prevents the sharp increase in material costs from being reflected in prices.

According to TÜIK data, accumulated inflation from the beginning of 2016 to the end of March 2024 amounted to 693.8% (7 times), and the increase in construction costs reached 1,361.4% (13.6 times). During this period, prices for materials in the construction sector grew especially rapidly. The significant increase in material costs is due to the increased use of high-quality materials and the share of imported components in the construction sector, which has undergone significant changes in vision and concept in recent years.

Due to the rapid increase in construction costs and its deterrent effect, the number of new homes whose construction has begun, especially since 2018, has decreased markedly. Due to limited housing acquisition opportunities for the low and middle class, the industry is focusing on projects for the upper class. In this regard, the number of apartments in buildings for which construction permits have been issued has also decreased. In 2017, a construction permit was issued for 161 thousand 921 buildings, which contained 1 million 405 thousand 447 apartments.

The number of buildings that received a construction permit decreased to 104 thousand 509 in 2018 and to 56 thousand 308 in 2019. With some recovery in the subsequent period, this number increased to 96 thousand 204 in 2020 and to 138 thousand 449 in 2021. In 2022, the number of building permits decreased to 127 thousand 885, and in 2023 it remained at the level of 138 thousand 270. The number of apartments in buildings that received a construction permit in 2023 amounted to 843 thousand 77, which is almost half as much as in 2017. The number of buildings that received permission for use (operation) in 2014 amounted to 124 thousand 510, and in 2018 it decreased to less than 100 thousand and to 86 thousand 654 for 2023. The number of apartments in buildings that received permission to use in 2018 exceeded 894 thousand, and in 2023 amounted to 533 thousand 375.

In ten years, 1.8 million extra houses have accumulated

The number of primary (new) houses sold is lower than the number of houses that have been approved for use; in other words, a significant part of the houses built have not been sold, which adds tens of thousands of new houses to the total number of houses in the country every year. From the beginning of 2014 to the end of 2023, permission was granted for the use of 7 million 133 thousand 675 houses, and the number of primary homes sold during the same period amounted to 5 million 365 thousand 743. Thus, over this ten-year period, 1 million 767 thousand 932 new houses were added to the total number of houses.

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