Turkey’s Housing Sector Faces Production and Financing Challenges

While the rise in housing sales is a positive development, the construction sector is grappling with serious production challenges. The depletion of existing housing stock, coupled with a lack of new projects, threatens to create long-term issues in the sector. Experts emphasize that a revival of construction activity is crucial, and for this, financing must be made more accessible. However, banks remain reluctant to extend loans, creating a bottleneck in the market.

Economic Improvements Yet a Stagnant Housing Market

Under Mehmet Şimşek, Turkey’s Minister of Treasury and Finance, the country has seen notable economic progress over the past 1.5 years. Despite facing criticism for tight monetary policies and austerity measures, Şimşek has remained committed to his approach. Economic indicators show improvements, with inflation dropping from 67.07% last year to 42.12% today. The automotive sector, once plagued by price speculation, has stabilized, and strict inspections have helped control price hikes in food and retail markets. Likewise, housing prices, especially rental rates, have moderated, and sales volumes have increased.

However, despite this progress, the construction sector—which impacts 260 sub-industries and is considered a key driver of the economy—still faces critical hurdles.

High Costs and Financing Barriers Limit New Construction

One of the primary reasons for persistent inflation, as Şimşek has acknowledged, is rental prices. The only way to mitigate this is by increasing housing supply. However, contractors are hesitant to launch new projects due to several challenges:

• Rising Land and Input Costs: Escalating land prices and construction material costs deter new investments.
• Difficulties in Securing Financing: Banks are still restrictive with both commercial and personal housing loans, despite the Central Bank lowering its policy rate from 50% to 45%.
• High Interest Rates on Loans: Although inflation has declined, banks continue to charge high-interest rates, limiting both developers’ access to credit and homebuyers’ ability to secure affordable mortgages.

Banks Remain Cautious Despite Policy Rate Cuts

Economists argue that the Central Bank’s interest rate cuts are not directly reflected in loan rates, as banks take a risk-averse approach amid concerns over loan defaults and inflation. The current gap between policy rates and commercial loan rates remains unusually high. A key factor influencing commercial loans is the stability of the foreign exchange market, which currently does not show major risks.

Despite this, banks prioritize high profitability and remain cautious about easing lending conditions. Experts suggest that if state-owned banks take the lead in offering lower-interest loans, the rest of the sector might follow suit.

Contractors: “Access to Credit is Critical for Production”

Developers argue that high-interest rates and credit restrictions have made it nearly impossible to start new projects. Even when agreements with banks are reached, the cost of borrowing makes projects financially unviable.

For example, a 5 million TL mortgage loan today results in a total repayment of 20 million TL over 10 years, making homeownership unaffordable for buyers. Contractors also highlight bureaucratic obstacles in land acquisitions, input costs, and urban transformation projects, further restricting new housing production.

The Need for a Sustainable Housing Finance Strategy

For the housing market to sustain its growth and contribute to economic stability, banks must facilitate financing with long-term, affordable credit options. Without this, both contractors and buyers will continue to struggle, ultimately leading to supply shortages and a return to higher housing costs.

The coming months will be crucial in determining whether the government and banking sector take necessary steps to ensure continued stability and growth in Turkey’s housing market.

Cem Cetinguc