Turkey: Building construction momentum

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Sentiment in the Turkish construction sector is rising, with contractors seeming confident that some of the momentum lost over the past 12 months will be regained as the government moves to open up several large-scale developments for tender.

According to data issued by the Turkish Statistical Institute (TurkStat) at the end of February, the confidence index for the construction sector climbed to 85.5 points, up 4.9 points on the previous month. While still below the 100-point mark, which indicates a positive sentiment, the February rise reinforced January’s result following eight months of decline, when the index dipped to just 71.8 points at the close of 2012. The TurkStat survey found the rebound was driven by an increase in orders on the books and expectations of higher employment.

Though sector confidence is rising, the public may be less optimistic. TurkStat’s consumer confidence index was relatively flat at 76.7 points in February, only marginally up on the January figure. Tellingly, the sub-index on the probability of building or buying a home over the coming 12-month period fell slightly, suggesting less faith in the market.

However, any easing in other segments of the sector will likely be offset by an increase in activity in infrastructure development. Bids in the tender to construct Istanbul’s third airport are set to close in mid-May, and the project is expected to have a price tag of around $9.3bn. When the first stage of the development is completed in 2017, the airport will be able to handle 90m passengers per year, a figure that may rise to 150m annually when later stages are concluded.

In the same month, work is due to begin on a third bridge spanning the Bosphorus, the waterway that divides Istanbul. The $4.5bn bridge, which is being developed by a Turkish-Italian consortium, is expected to be operational by mid-2016.

Other major projects set for development include a multi-lane freeway linking Istanbul with Izmir, tentatively priced at $6.5bn, and a 3.2-km suspension bridge over a north-eastern arm of the inland Sea of Marmara. The government also plans to implement its long-term urban transformation programme, which foresees the replacement or reinforcement of thousands of buildings across the country deemed at risk from earthquakes. The project is expected to cost as much as $500bn.

In early February, Veysel Yayan, secretary general of the Turkish Iron and Steel Producers Association, predicted crude steel output would rise from 35.9m tonnes in 2012 to 38m tonnes in 2013, as demand is sparked by new infrastructure developments. This higher demand would also see steel prices pushed up, Yayan told the Bloomberg news agency, with tariffs likely to rebound after a 7% fall in 2012.

Another sign that the industry is gearing up for a busier year in 2013 is the increase in sales of heavy construction equipment, which rose by 13% in 2012. While this is less than in 2009 or 2010, when sales rose by 100% and 40%, respectively, it does suggest the sector is looking ahead to the coming wave of infrastructure developments and other public works projects.

The expected rise in activity has also sparked interest among foreign contractors. In late February, the Investment Support and Promotion Agency issued a statement saying representatives from British, German and Spanish construction firms had held talks with officials from the Housing Settlement Administration and its subsidiary, the Emlak Konut Real Estate Investment Trust, to discuss the potential of joint developments. With the opening up of Turkey’s real estate market to non-Turkish citizens, there is the potential for overseas investors to build and sell residential projects directly to foreign buyers.

While the government has ambitious plans, one potential challenge could be generating funding for such a wide range of projects, many of which will rely on the build-operate-transfer (BOT) model. With capital somewhat difficult to come by at the moment, with European lenders in particular currently cautious, some of the large-scale infrastructure projects could experience delays in their dates to break ground, as has been suggested is the case with the third Bosphorus bridge.

Even if there are some delays there will be a growing market for construction services in the coming months and years, though in the case of some of the largest BOT developments, it may take some time for the lead contractors to enjoy the full fruits of their labours.

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