Turkish President Recep Tayyip Erdoğan and his Justice and Development Party (AKP) have long relied on the construction sector as the driving force behind the economy, but in recent years both the sector and the economy have ground to a halt.
With unsold housing stock piling up and the troubled economy leaving few with the purchasing power to buy homes, the government has tried to reinvigorate the sector, by offering slashed rate mortgages and citizenship to foreign investors in real estate.
The opposition accuses the state statistical institute of massaging its own figures, but even so they are extremely troubling. In one year, the official number of unemployed people has climbed by 980,000 to 4.65 million. Half a million newly unemployed have come from the construction sector.
Contractors and construction firms with links to the ruling party that had been assigned prime real estate and grown fat on lucrative public tenders are now suffering, or are on the verge of bankruptcy.
This year, Erdoğan forced the central bank to slash the benchmark interest rate by 10 percentage points in three months. In an added effort to stimulate the housing sector, he also ordered state-owned banks to offer low-interest mortgages. But housing sales have continued to drop.
A report by the country’s Association of Real Estate and Real Estate Investment Companies said that, as of October, unsold housing stock is at a level that would take three-and-a-half years to sell off, even if no new housing were built. The number of homes built, but unsold since 2013 is 2.13 million.
The problem is, even if interest rates on mortgages are slashed to zero, with 4.65 million people unemployed, there are not many who can afford to tie in to a 20-year payment plan and buy a house. Most people are thinking about how they can survive from day to day, and even those who do have jobs are plagued by job insecurity.
The government made another attempt to reinvigorate house sales last year by lowering the value of real estate purchases that would allow foreigners to become Turkish citizenship to $250,000.
While in October housing sales fell by 2.5 percent compared to the same month last year to 142,810 across Turkey, sales to foreigners fell by 31.9 percent in the same period to 4,272.
The government’s cheap credit campaigns to drum up interest in the market have likewise failed, for the simple reason that few have either the income to take out a mortgage or the cash saved to pay a 25 percent deposit.
Even the cheapest instalment payment, factoring in interest, comes to between 2,600 and 3,400 liras. Considering that minimum wage is 2,020 liras, buying even a small flat is out of reach for most people, even if both members of a couple work.
Treasury and Finance Minister Berat Albayrak has attempted to address this with a new campaign that will offer 10-year mortgages to people on low wages at a monthly interest rate of 0.5 percent – nearly half the rate offered in the last campaign. The campaign aims to sell 100,000 homes in a year.
As part of the campaign, the proceeds of a mandatory wage deduction introduced last year will be offered for use to pay the 25-percent deposit required to buy property. The system does not allow workers access to these deductions for any other reason.
The Erdoğan administration has also stepped up its attempts to attract foreign investors to buy property in Turkey by ordering the creation of an office to help foreigners with their purchases under the General Directorate of Land Registry and Cadastre.
The office is to be tasked with helping foreigners in every aspect of purchasing real estate in Turkey, and aims to open branches in 12 countries. The campaign is already active online, with websites in Turkish, English, Arabic and German explaining the process of buying property and acquiring citizenship.