While real estate developers are looking for would-be consumers to take the bait, home-seekers are reluctant to bite.
Housing developers and construction companies point to a slowdown in the market. "Last year was an exceptional period, with a boom in housing sales," says Teoman Metehan CEO of Teknik Yapi, a prominent construction and residential development company. "This year there is difficulty in financing projects." In 2005 demand outstripped supply in up-market housing, now Turkey's home-seekers are more sensitive to the price of real estate and weighing their options more carefully. A proliferation of housing development in Istanbul is providing greater choice for would-be home-owners.
The housing market also felt the brunt of the spike in interest rates in May and June, encouraging families to delay plans to acquire loans for housing, meaning a dip in demand for residential units. Now home-seekers are expected to delay their plans once again until the presidential and parliamentary elections have passed in 2007 and consumers feel confident that an extended period of market stability lies ahead, punctuated most importantly by lower interest rates. For Turkey's yet-to-be legislated mortgage system to take flight, monthly interest rates need to decline to around 1%, insiders say.
"Monthly interest rates increased from 1.1% up to 2.5% after May," said Yucel Ersoz, the general manager of real estate investment company Yapi Kredi Koray. "Now they are around 1.7 - 1.8%, which is detrimental to home buying."
Some home-seekers are also hoping for a reduction in real estate prices. A futile wish, observers say. "I don't see a massive reduction in prices primarily because land is limited," says Metehan referring to the struggle of property-searchers to find attractive flats close to downtown Istanbul. In such up-market areas as Levent or Etiler a 120 sq meter apartment in a 15-20 year old building would go for roughly $120,000 to $150,000 in 2000/01, with the same flat fetching an estimated $250,000 today, according to an industrial insider. At that price, the flat may even require some refinishing and further decoration.
Real estate developers themselves are having increasing difficulty finding plots to develop close enough to the city centre.This has not stopped companies from providing homebuyers with a helping hand to reduce the cost of acquiring property. The vast majority of developers are subsidising interest rates on loans to provide more favourable borrowing conditions. "This is equivalent to a discount, in some cases 20 - 30%," said Ersoz.
Market analysts say real estate developers offer these discount rates to register sales even for a smaller profit margin. Such is their desire to liquidate their investments and register a return.
Still, there is cause for optimism for firms in the business. Though construction companies and real estate developers are struggling for a share of the pie in the upper end of the housing market, delayed demand is likely to snowball. Insiders expect demand to be released in 2008 much as it was in 2005 - assuming that interest rates are appropriately low - spurring home-seekers to make new acquisitions.
While Istanbul's well-heeled property-seekers have no need to hold their breath for the long-anticipated mortgage law, the new legislation will likely play an important role in fuelling a future property boom. The bulk of middle-income earners, who are forced to save, will be the main beneficiaries. Important is the fact that mortgage lending in Turkey counts for as little as 4% of GDP, representing some contrast to 55% for the US and 39% in the Eurozone. With an estimated 600,000 new home-seekers emerging every year, there is little doubt that Turkey's real estate market has great potential.