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Residential property prices in Turkey will see a strong growth in 2015, but a possible rate hike by the U.S. Federal Reserve Bank will hurt the housing markets as it will discourage foreign capital flows, Standard and Poor’s (S&P) said in a report released recently. 

Turkey’s housing markets rely heavily on foreign investment. The U.S. Fed is all set to increase interest rates later this year. The U.S. central bank has kept overnight interest rates near zero since December 2008, but a number of officials have said recently an increase will likely be considered at its June policy-setting meeting. On the other hand, the European Central Bank recently launched eurozone “quantitative easing”. The combined effect of both developments may discourage foreign capital flows to Turkey.

The S&P report titled “Housing Markets in Israel, Russia, South Africa and Turkey Show Resilience to Weaker Economic Conditions,” said that Turkish residential market gained more than 16% in nominal terms in 2014 in a sign of strong growth. 

“The market softened temporarily in the first half of 2014 amid slowing economic growth and interest rate hikes, but rebounded strongly as monetary conditions loosened and confidence returned,” it said.

“We expect domestic demand to rebound in 2015, supported by more accommodative monetary conditions and a boost to real incomes due to falling headline inflation on the back of lower oil prices, supporting demand for residential properties this year... 

"Funding conditions are likely to remain supportive for the housing market in the near term. Overseas buyers’ interest in Turkish real estate will continue to support the market, but strong structural demand from Turkey’s young and growing population will remain the key driver of housing market activity,” it added.

So even though the expected rate hike by the U.S. Federal Reserve Bank is creating an uncertain environment for foreign capital flows to Turkey that could ultimately hurt the housing industry, domestic and overseas demand is rebounding, according to the S&P report.

“Residential property prices in Turkey had risen strongly in 2014, gaining more than 16 percent in nominal terms. Real price gains exceeded 7 percent, up from 6 percent recorded last year,” said the report. 

According to the research, the Turkish population is expected to grow by about 11 to 12 percent between 2012 and 2023, according to the Turkish Statistical Institute (TÜIK). Istanbul’s population is projected to increase by 20 percent over this period, to 16.6 million by 2023.

This article was republished with permission from Global Property Guide.