Real Estate Industry

Turkish real estate sector now in a new period of development

The Turkish real estate sector has been going through a period of development in recent years. At a time when international real estate sector norms are being increasingly adopted, a development was initiated in the housing category as well as other sub-categories. While the finance system in the sector has gained a more effective structure, it is also observed that the degree of institutionalization in companies has increased, with a considerable rise in the quality and standards of the products. Another important development in the sector has been the specific rise in the number of foreign investors.

The trend towards postponing decisions on buying houses

Consumers exhibited a trend towards postponing their decisions on purchase homes in 2007. The presidential and general elections which took place in 2007, and the impact of the uncertainty in the global economy on the Turkish economy played a role in this trend. On the other hand, it has been observed that the real Estate sector gained some speed in the second half of the year.

The elimination of political uncertainty, the initiation of state-sponsored housing projects, the downward effect on interest rates through the introduction of a the new mortgage system and Turkey's uninterrupted run of economic growth were among the main reasons for the acceleration in the sector in the second half of the year Despite a recession in the housing sector in 2007, commercial real estate has been the motor behind the growth in the sector. 

According to reports prepared by GYODER (The Association of Real Estate  Companies), Turkey needs 8 million new homes by 2015. The biggest factor creating demand is the high number of homes in Turkey which are not resistant to earthquakes and which lack reconstruction permits or title deeds. Much of the demand in the housing sector comes from people of middle or lower-middle income levels seeking to live in newly constructed and safe compounds or estates with social facilities, instead of the existing insufficient apartments. On the supply side, on the other hand, it is seen that construction firms cannot produce sufficient affordable housing, due to rising construction costs and high land prices. The fact that interest rates do not support purchasing power from middle and lower income groups, and the fact that construction companies cannot build enough homes to meet rising demand are the main obstacles. 

Cheap land is of great importance

Raising home ownership among the middle and lower income groups in the coming period depends on the fall in housing prices that may be achieved with the help of incentives to provide cheap land for development. Besides, in order to support purchasing power, a fall of more than 1% in interest rates and introduction of state incentives in housing purchases are of great importance. Despite the problem of high land prices, another alternative solution which could support the building of affordable housing is to attach importance to urban transformation projects and increase their number.

It is thought that investors aware of the housing shortage for the middle income group may focus on the construction of homes for the middle income group in 2008 in regions where land prices are relatively low. In addition, based on TURKSTAT data, it is envisaged that the annual 1,5% growth in population and urbanization rate of 2,5% will support demand for housing and thus set the stage for rapid growth in the real estate sector. 

Foreign investment in real estate sector reached USD 905 million in 2007

 Turkey's economical development and sustainable growth in recent years has promoted foreign investor interest in the real estate sector, paving the way for rapid growth. This has been accompanied by a rising number of international investors entering the Turkish market. Foreign investors entered the market by 

• purchasing real estate, or 
• directly developing projects, or
• establishing partnership with construction and development companies, or
• through mergers and acquisitions, or by
• making portfolio investments at the stock exchange.

Foreign investors entering the market in 2007 accelerated their investment in 2007. Institutions with foreign capital focused on purchasing real estates and developing projects in 2007 in the real estate sector. According to the data prepared by the Central Bank, direct FDI into the real estate sector surged from USD 99 million in 2006 to USD 905 million in 2007.

Foreigners predominantly purchased property in the Aegean and Mediterranean regions, purchasing 59.429 properties according to data released by the General Directorate of Land Registry and Cadastre. It is stipulated that foreign investors' interest in the Turkish real Estate market will also continue in the coming periods. 

Work begins on a wave of shopping center projects 

Turkey as one of the leading countries in terms of the number of shopping center (SC) projects implemented. In 2007, the total number of SCs in Turkey reached 179, with the total rentable area reaching 3,5 million m2. Of 179 SCs throughout Turkey, 58 are located in İstanbul and the remaining 121 are in various cities throughout Anatolia. While it is calculated a total of about USD 10 billion was invested in these 179 SCs, it is believed this total amount will rise to USD 22 billion through new investments in the coming five years.

Some 32% of the SCs throughout Turkey are located in İstanbul. Taking account of those still under construction and at the project phase, it is expected that the total number of SCs in İstanbul will reach 142, with 204 in Anatolia, bringing the number of SCs throughout Turkey up to 346. SCs have become the field of investment constituting the largest center of attraction for foreign real estate investment companies.

Demand for offices envisaged to rise in the coming years

In 2007, availability of office space fell and rents increased. Foreign companies entering Turkey triggered the demand for office space. Another factor feeding the rising demand was the rapid development of domestic companies during sustainable economical growth, and helped by supportive market conditions. In particular, demand for qualified office buildings located in city centers continues. In this period, where there have been only a small number of office projects, demand for A class buildings still continues. Demand in the Office sector is forecasted to continue in 2008 as well.