We are now almost into the spring of 2012, so it felt like a good time to start making some serious predictions on property markets around the world. I thought I would do in the style of the famous Bruce Forsythe game show The Price is Right, in which contestants had to guess whether or not the next card was higher or lower than the previous one. Will property prices in Turkey end this year higher or lower than they ended last year?
I’m going higher Bruce.
Throughout 2011 Turkish house prices grew at a steady pace of around 6% year on year in each monthly index. This is because of the same reason why the Turkish economy is among the strongest and most stable in the world; because Turkey had a financial crisis before the rest of the world in 2001, and the measures put in place to combat this and future proof it against future shocks, meant Turkey stood firm and resilient against the recent crisis, suffering a moderate year-long recession before bouncing back to exceptionally strong growth.
Turkey’s banking sector was hit hard by the 2001 crisis and as a result was heavily reformed by the incoming AKP government in 2002. Before becoming prime minister, AKP leader Recep Tayyip Erdogan was mayor of Istanbul, made famous for paying off almost all of the municipalities $2 billion public debts. Banking system reforms included increasing foreign exchange reserves and having an office of the Central Bank in all banks, which have to submit daily reports to said office.
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The combination of these reforms, plus the fact that Turkey had a small exposure to sub-prime mortgages, meant liquidity remained high in Turkey. However, this doesn’t mean easy mortgages either, which is another reason why I predict continued steady growth for Turkey.
In the likes of the US and Spain mortgages became far too easy to get, with the problem being that people were getting mortgages that they could only just afford, so if rates rose they were knackered. People were getting mortgages of not only 100% LTV, but up to 120% LTV so they could buy and make improvements at the same time. In Turkey, the average LTV is 70%. Also, the banks value every property they lend on, and lend against their valuation not the asking price. This negates the possibility of people falling quickly into negative equity if there is a market lull.
This is another reason why Turkish property prices continue to grow at a steady, sustainable rate, because the bank valuations are impartial, rather than the buyer simply paying the asking price stuck on by the far-from-impartial estate agent, and based as much on what the market will pay as the actual value of the house. Keeping price growth steady prevents first time buyers from being either priced out of the market, or worse (in some ways) forced to take on an unaffordable mortgage and risk defaulting.
Mortgage finance is gradually becoming more readily available in Turkey, as the economy grows and the Turkish people become more affluent. But we are still a long way from where we need to start worrying about it being too easy to get mortgages.
However, my belief that property values in Turkey will see out this year in growth, is also about economic growth and stability. The housing market in Turkey is doing so well because the population is growing in affluence and their access to mortgages is growing steadily as well. So, as long as the economy keeps growing, people keep becoming more affluent, price growth remains steady (i.e. not too fast) and the mortgage market continues to behave responsibly, then it is almost a self perpetuating cycle of continued growth. As OPEC believes Turkey will be one of the strongest growing economies in the world between now and at least 2015 I believe that property prices will continue to grow this year and beyond.
