Trouble Brewing in Turkish Real Estate Sector

By Servet Yıldırım
Translated and adapted for PA Turkey

The challenges facing Turkey’s real estate sector were summed up succinctly at a recent dinner attended by some of the country’s top business leaders. One prominent industry figure stated: “Buyers are troubled—prices are too high. Sellers are troubled—costs are too high and there are no buyers.” This single sentence captures the imbalance between supply and demand and highlights the deadlock gripping the market.

While the dinner included participants from various industries—energy, food and beverage, cosmetics, tourism—it was clear that real estate and construction were facing particularly acute problems. Similar concerns echoed across other sectors, but real estate seemed especially stuck.

Everyone’s hoping for a market reset. But that reset won’t come from falling costs.

No Relief in Sight on Construction Costs

No one in the industry expects a decline in construction costs. In today’s high-inflation environment, such a prospect is far from realistic.

One sector representative painted a stark picture: “In the last five years, the cost of raw construction—from concrete to bricklaying—has risen by 2,500%.” At first glance, the figure may seem exaggerated, but insiders insist it accurately reflects current market conditions.

This leaves one path to rebalancing the market: a boost in purchasing power. Yet, that’s no short-term fix—it could take years. The key variable here is interest rates.

Interest Rates Are the Biggest Obstacle

Turkey’s housing demand is typically driven by access to credit. When interest rates are reasonable and buyers can access loans, the impact on demand is immediate. The market begins to recover.

However, current mortgage rates are prohibitively high. As a result, very few people are willing—or able—to take out home loans. And even when credit is technically available, the low loan limits and punishingly high rates make it virtually inaccessible for most prospective buyers.

In other words, credit is both scarce and expensive.

Disinflation Isn’t Moving Fast Enough

Industry voices have been vocal: “Interest rates must come down, and loan limits should be raised.” But standing in their way is the Central Bank, which is battling inflation stuck between 35% and 40%. And so far, the disinflation process has been far slower than initially projected.

Given these conditions, a rapid decline in interest rates and a loosening of credit restrictions are unlikely in the short term. As one veteran of the construction industry with over 45 years of experience remarked: “In Turkey, real estate has two competitors—deposit interest rates and mortgage rates. And right now, both are extremely high.”

Today’s interest rate environment severely curtails both housing demand and access to financing. And as long as inflation remains elevated, the Central Bank is unlikely to respond to industry pleas for lower rates.

Short-Term Outlook Remains Bleak

The conclusion is clear: It’s hard to be optimistic about the real estate market in the near term. The high cost of borrowing, low credit availability, and stubborn inflation make for a difficult environment that isn’t likely to improve without a fundamental shift in macroeconomic policy.

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