Turkey- Construction again the hope of the economy in 2016

(MENAFN- The Journal Of Turkish Weekly) >Turkey’s growth rate for last year will be disclosed at the end of March by the Turkish Statistics Institute (TÜK).

Estimates are that nearly 4 percent growth was achieved meaning a continuation of the average 3 percent growth tempo experienced in 2012 and after. The growth rate forecasted for 2016 is 4.5 percent but this has been considered an optimistic target; several institutions and authorities agree that growth between 3.5 percent and 4 percent will be achieved.

When a growth rate reaching 5 to 6 percent on average in previous years is taken into consideration growth has slowed down in recent years. However considering the global situation it is frequently referred to as “Thank God for this.”

Wind from construction

The 4 percent growth is totally domestic market based. In other words it is growth created by domestic demand; foreign demand and net exports do not contribute to growth. Public expenditures are not very effective in domestic demand as mostly the main winds of growth are the consumer demands of households and the construction-based investments of the private sector.



The share of construction in private investment expenses as well as household consumptions for houses shows that construction again played an effective role in growth in 2015. When these two categories are summed up they constitute nearly 17 percent of national income.

In national income calculations in terms of expenditures we see that food and beverage expenses have a contribution of around 20 percent. This shows that construction is the second most important item.

Machinery investments are third place with almost a 13 percent share while household transportation and communication expenses take fourth place with 11 percent. Public consumer expenses have a share of 10 percent in national income. This also reminds us again of the role of construction in the growth of recent years.

The annual increase in home consumption and construction expenditures has had an up-and-down course in recent years. Construction expenses mostly homes grew 2.4 percent in 2014 and then they were estimated to have reached 6.1 percent in 2015 exceeding the 4 percent general growth rate.

In 2015 it is understood that there was not much of an appetite to launch new construction projects as the focus was on selling the current stocks. As a matter of fact this can be seen in the number of applications for building permits. In the first nine months of 2014 buildings permits for 820000 units were requested while in the same period of 2015 this figure went down to 620000 units.

House sales

On the other hand 2015 was a year when house stocks fell and house sales increased compared to 2014. According to TÜK data in 2014 1.165 million houses were sold; in 2015 this figure increased 11 percent to nearly 1.24 million.

In house sales in 2015 Istanbul had the highest share with 18.6 percent and nearly 240000 units sold. The capitalAnkaracame next with an 11.4 percent share and nearly 147000 sales while the Aegean city of zmir came third with a 6 percent share and nearly 78000 sales.

In Turkey in general 46 percent of total house sales in 2015 were new houses. In 2014 new houses again constituted 46 percent of total sales.

Even though a higher target was aimed for house sales to foreigners had a very low course. In Turkey in general nearly 23000 houses were sold to foreigners in 2015. According to Central Bank data property sales to foreigners including houses reached $4.3 billion. This figure was $4.1 billion in 2014 and $3 billion in 2013.

House sales to foreigners increased 20.4 percent in 2015 compared to the previous year. In sales to foreigners in 2015 Istanbul topped the list with 7493 houses while southernAntalyacame next with 6072 houses. The northwestern provinces of Bursa and Yalova followed with 1501 and 1425 houses respectively.

Among foreigners those of Middle Eastern origin bought the most in Turkey. Iraqi citizens bought 4228 houses in Turkey in 2015 while Saudi Arabian citizens bought 2704 houses and Kuwaitis bought 2130 houses. Russians bought 2036 houses and U.K. citizens bought 1054 houses.



Houses for investment

It was observed that Istanbul was by far the leading location in housing production and sales; it is also a noteworthy trend that a significant portion of house sales were not for residing but for rental purposes and the high return expected.

Only 35 percent of houses sold were mortgaged in other words bought with loans. This demonstrates that two-thirds of the purchases were made without loans.

The increases in housing prices in other words the annual return of a house investment has a higher course than other options and this accelerates the demand for houses as an investment tool.



According to Central Bank data in 2015 housing prices in Turkey in general increased nearly 19 percent exceeding the 14 percent increase in 2014. While inflation was 8-9 percent the increase in housing prices had a real return of 6 points. Especially in Istanbul where 20 percent of house sales occurred the price increases were quite remarkable.

In Istanbul house prices increased around 26 percent in 2015 exceeding inflation by 18 points. While even the dollar/Turkish Lira exchange rate had an increase of around 24 percent the fact that Istanbul housing prices had a higher course explains why demand for houses for investments was high.


2016 forecasts

In 2016 while the world economy is struggling with a series of uncertainties it is obvious that Turkey has taken and will take its share from this negative climate. Turkey experienced a year in 2015 with low foreign capital inflow when it absolutely needed foreign capital; the country does not have the luxury to repeat this in 2016. Alongside economic fragilities domestic political tension and most importantly the high geopolitical risk in the region do not portend a positive year for Turkey. This also means that the targeted 4.5 percent growth is highly optimistic.

Despite this construction remains a possible leg for the economy to stand on as the highness of its return in particular keeps the demand high for units for investments. This is an important wind for the sector. Also ongoing urban transformation projects are important leverage for the sector. In urban areas 178 zones where almost 1.5 million people live covering 8000 hectares have been declared “risk zones.” Nearly 90000 buildings including residential buildings and offices have been deemed risky. The fact that all of them will be renewed is an important business opening for the sector and the financial support of official authorities is a significant opportunity.

All of these are signs that during an otherwise cloudy 2016 the best sector relatively will be construction. But nevertheless this does not mean that construction alone is the main support beam which the economy will rely on.