How is The Inflation Affecting The Turkish Economy And The Real-Estate Sector

Most people agree that Turkey in different areas, especially Istanbul, is an attractive environment and favorable climate for real estate investment in Turkey, as many foreigners rush to buy real estate in Istanbul and have apartments for sale in Turkey. On the other hand, it is noted that the Turkish lira is undergoing a clear decline and many dealers dealing with Turkey are repeatedly counting due to the instability of the exchange rate. The consequences of this conflict are particularly negative (economic and social) for Turkey’s real estate sector.

Several influencing factors play an important, efficient, and stimulating role in real estate investment in Turkey. As long-term investments guarantee profitable returns every day. High-interest rates and economic constraints have had an impact on the economy,  one of the consequences of falling real estate prices and the depreciation of the lira. In May 2019, home sales in Turkey were around 82,252 units, down 31.3% from the previous year.

The overall residential housing market remained stagnant and house prices across Turkey and Istanbul were below inflation rates.

We can’t help but wonder what is inflation and what is causing it? Is this a measure of an economy’s weakness? and how does this impact the real estate market?

Inflation is an economic term that refers to a decrease in the value of a currency (the value of its purchase) due to a significant increase in the general price level of goods and services. As this affects the financing cost of enterprises, the ability to maintain profits and capital, this affects the cost of living of ordinary people and the corresponding monetary power of the country.

Apparently, the main reason for this inflation is the difference in the Turkish lira exchange rate  against the US dollar. The exchange rate in mid-2018 was 4.5 Turkish lira per dollar, reaching 7 Turkish Lira per dollar in September of the same year. This means that the value of the local currency has fallen 55% in just three months. This is a major detriment to foreign investors’ confidence, despite the improvement in the lira at an exchange rate of 5.56 per dollar since the end of 2018.

As for our second question, if we look at Turkey’s Gross National Product (GDP) country rankings it shows that Turkey continues to develop and ranks 13th in the world in 2020 and aims to become one of the 10 largest economies by 2023. Therefore, high inflation rates are irrelevant. Conversely, according to GNP,  the devaluation of the Turkish currency provides a great opportunity to export to foreign countries at competitive prices.

And finally, how does inflation impact the real estate market?

The local share of the Turkish real estate market is about 97% and the proportion of foreigners is 3%. To answer the above questions, the target market must be determined during the process of purchasing a property, and the location of the property itself is very important in determining how inflation affects it. Local markets are negatively affected by high inflation as they negatively affect the CPI. When it comes to foreign markets, high inflation doesn’t affect buying and renting properties. Actually, high inflation can sometimes have a positive effect as buying and leasing real estate becomes cheaper compared to foreign currencies with the Turkish lira.

According to a recent statement by Turkish President Rajab Tayyip Erdoğan, the next few years will be Turkey’s plan to achieve fiscal stability, price stability, and reduced inflation.

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