Confidence in Construction


Economic News

22 Jul 2010
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A string of key infrastructure projects and the likelihood of a new mortgage system starting soon have left Turkey's construction sector with much to smile about these days. Confidence, whether from banks or loan-seekers, has not been in short supply either of late.

"Banks have started decreasing interest rates, spurring people into buying," said Suleyman Son, the general manager of developers TEPE.

This November, monthly interest rates for home loans were around 1.19-1.20%, compared with the 2% that was registered in 2004. Observers also expect these rates to be lowered further soon.

This means that Turkey's established contractors can look forward to even greater demand, particularly with the much-anticipated new mortgage law - likely to be introduced by the end of this year or the beginning of 2006. This will guarantee longer periods of maturity and more favourable terms for mortgage seekers.

"We believe that the [new mortgage] system will have a positive impact on the economy," Anatolian Building Contractors' President Ismail Babacan said. "Moreover, it will require the use of better-quality materials and products and will result in the construction of better homes."

Lingering concerns nevertheless persist with the new mortgage system. The danger is that with loans more readily available, the price of property will increase even further. Others point to the need for interest rates to decrease further if mortgages are to really take off. Then there is the question of inflation.

"If the inflation rate is too high the new mortgage system may not be successful," says Tarik Aygun, chief financial officer at Guris Holding. "The new system would be more effective if inflation were 4-5 %." Currently, the rate is around 7.1%.

All in all however, Turkey's new mortgage law will likely be positive, both for contractors and homebuyers alike. Meanwhile, the government is spurring business for construction companies by acting in the housing market itself.

"The authorities are supporting big housing projects for low-budget families," says Akin Ozcan of prefabricated buildings manufacturer TREYSAN. "The government is looking to build and sell luxury housing to help subsidise the cost of low-budget housing."

Optimism within the sector does not depend purely upon increased demand for real estate in the years to come. Local construction companies know full well that current and future infrastructure projects in Turkey will also bring them substantial amounts of work. Such energy projects as the Baku-Tbilisi-Ceyhan pipeline will require maintenance, analysts point out. So indeed will pipelines running through Turkey to Eastern Europe. The anticipated opening of a gas pipeline from Azerbaijan to Greece via Turkey at the beginning of 2006 will also be significant here.

Also in the energy field are many hydroelectric schemes. "Around 50 dam projects are planned for the near future in Turkey," says Ozcan.

Road infrastructure projects also beckon, particularly in the Black Sea region. The 560-km South Black Sea Road and the 402-km Ankara-Samsun route are both major construction developments.

There is also Istanbul's subterranean Marmaray tube, linking the Asian and European sides of the city. The bidding process for the second phase of the project - comprising the renovation of a 70-km suburban rail line and its integration with the underground line - commenced in July of this year, with completion scheduled for 2008.

The fast train link connecting Istanbul and Ankara is also continuing to progress. According to the Turkish State Railways (TCDD), the Ankara-Eskisehir section will be operational in 2006. The Alarko-OHL consortium is close to completing infrastructure work along this section of the line.

Progress on the Ankara-Istanbul line has also been made in the second stage of the fast train link, with a tender for this phase won in October by a Chinese-Turkish consortium consisting of CRCC (China), CMC (China), Cengiz Construction (Turkey), and Ibrahim Cecen Ictas Construction consortium (Turkey). Changes made to construction works however mean that the second stage will commence in 2007, as opposed to 2005 as was originally planned.

Turkey's biggest players are not limiting themselves to the domestic market though. The 2000/2001 financial crisis was, in a sense, a blessing in disguise, forcing Turkey's larger construction firms to bid for tenders abroad and diversify their portfolios. Moreover, there has been no let up in the rate with which Turkish construction firms have taken their trade abroad, with bids in Central Asia, Russia and the Middle East continuously won by Turkey's big-hitters.

Those contractors that are unable to operate abroad in the meantime are heartened by domestic economic growth, the level of foreign investment, and overall confidence in the economy. All this - they hope - will allow to government to push ahead with more developmental projects in the years to come.

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