When Turkey's first ever mortgage law was passed in February 2007, market analysts made only cautious projections about the near-to-medium term impact on the real estate market. Presidential and parliamentary elections were, after all, around the corner, with home-seekers keeping their purse strings tight, not discounting the prospect of a larger showdown between the conservative ruling party and secularist establishment, or the election of a fractious, ineffective and confidence-busting coalition government. Importantly, interest rates were too high for home-seekers to make the plunge and take out new housing loans en masse.
Seven months later, after the Justice and Development Party (AKP)'s landslide victory and former foreign minister Abdullah Gul finally secured the presidency, projections on Turkey's mortgage system and housing demand appear to have shifted a little.
As previously, monthly interest rates remain too high. "Now interest rates are between 1.32% to 1.33% a month for big projects and we can not say that they will necessarily fall below the required 1% in one year," CEO of Teknik Yapi Teoman Metehan told OBG.
While the Central Bank of Turkey (TCMB) said it may cut key policy rates in Q4 - depending on market conditions - home-seekers remain sensitive to global market fragility. Little reminder needed of the run on emerging markets in May/June 2006 when interest rates on housing loans sprang from an attractive 0.99% to 2.69%, with middle-range abodes on the market gathering dust as a result.
Uncertainty over the degree of damage caused to emerging markets following the current squeeze on global liquidity persists. The Turkish economy has stood strong, but a drop in the value of the lira and loss in short-term investor confidence should not be altogether discounted as a possibility.
"The future is still not very clear at the moment," confirmed Metehan.
Structural factors have also come into play, with secondary mortgage legislation yet to be finalised.
"Secondary legislation is likely to be in place by the end of the year," according to Yucel Ersoz, General Manager of Yapi Kredi Koray.
Notwithstanding global market volatility, some analysts believe that this could have an effect in bringing interest rates lower. Under the current system of loans, Turkey has no securitisation of houses and no secondary market.
Reports from real estate agents and construction companies of a rapid 20% pickup in sales for residential real estate for the two weeks following the general elections have thus proven short-lived.
"Since May 2006 we have seen some growth in the market - albeit modest. Now there has been a little more growth," said Metehan.
No coincidence that real estate companies are continuing to subsidise interest rates on housing loans to entice home-seekers into acquiring property at a time when interest rates would ordinarily be considered too high. That is despite the low margins earned from such sales.
None of this is to detract from the potential of the mortgage market, and the cooped up demand from middle-income home seekers that has yet to be released. The right market conditions will release a torrent of demand. But there is no shortage of realists. "Within the next 10 years, overall growth looks promising but there will be fluctuations," projected Ersoz. There has of course already been a positive shift. "Everything feels more stable now that we can see the light at the end of the tunnel after the elections," said Ersoz. Still, the trend amongst home seekers until now has been to wait and see until the conditions are right to invest in a long-term housing loan.