TURKEY'S CONSTRUCTION COST INDEX DIPS BUT STILL HIGH
Construction expenses on a yearly basis experiencing minimal surge, marking a 4.5-year low according to recent statistics
In Ankara, construction costs soared by 22.69% year-on-year in April, marking the least drastic annual increase in nearly five years.
According to data from the Turkish Statistical Institute (TÜİK), the monthly headline cost index surged by 1.67%. The labor cost sub-index climbed 1.1% month-on-month, resulting in a yearly increase of 31.8%.
Material costs in the construction sector shot up by 2% monthly and 18% annually.
Since May 2024, the headline construction cost index has consistently dropped, with a yearly increase of 77.1% that month.
Despite the slowdown, the rise in the construction cost index in April was below the annual inflation rate of 37.86%.
Addressing the rental inflation issue, the government revealed it's focusing on supply in the housing market. After the Economy Coordination Board meeting, chaired by Vice President Cevdet Yılmaz, a statement shared supply-side policies and structural steps to combat inflation, stating that the anticipated continuation of supply and demand stabilization in the housing market would ease rent inflation.
House prices swelled 3.1% month-on-month in May, resulting in an annual increase of 84.9%, according to the most recent official CPI data. Last month, consumer prices climbed 1.5% from April.
HOUSING MARKET OVERVIEW AND CHALLENGES
Currently, Turkey's housing market is facing several challenges, including economic policies, geopolitical conditions, and urban transformation projects. Here's an overview of the current supply-side policies and factors affecting the housing market and rental inflation:
Economic Policies:- Mortgage rates as of early 2025, approximately 3% monthly, impact affordability.- There's speculation for interest rate cuts beginning in July 2025, which could alleviate mortgage concerns and potentially stimulate the housing market.
Supply-Side Policies and Urban Transformation:- Urban transformation projects underway in Istanbul, such as Beylikdüzü, Avcılar, and Kağıthane, are spurring growth.- The Kanal Istanbul Project is anticipated to drive housing prices in Küçükçekmece, making it an appealing investment opportunity.
Challenges and Risks:- Inflation and currency volatility pose threats to housing prices and affordability.- Geopolitical factors can impact demand from international investors due to restrictions on foreign property purchases outside major cities.
Overall, despite attempts to control interest rates, boost infrastructure through urban transformation projects, and ease mortgage costs, the housing market faces challenges from inflation, currency risks, and geopolitical factors. These factors can affect both the supply and demand sides of the housing market, ultimately influencing rental inflation and housing affordability.
The manufacturing industry in Turkey might benefit from the ongoing urban transformation projects, as cheaper construction costs in the country could potentially lead to lower housing prices, making it more affordable for both locals and potential investors. On the financial front, if the speculated interest rate cuts in July 2025 materialize, the drop could improve the affordability of mortgages, thereby stimulating both the housing and manufacturing industries.
