Turkish builders face tough year as borrowing boom turns into contraction
Turkey’s construction companies are facing higher costs and fewer buyers after the government stopped encouraging a borrowing boom and switched its focus to fighting inflation.
The industry, hit hard by a currency crisis in 2018 which led to a slump in demand for new homes, enjoyed a brief reprieve last year as the government coerced banks into flooding the market with cheap loans to combat the economic impact of COVID-19.
But sales of properties have dipped sharply in the past few months, with demand for mortgage loans slumping. Interest rates on borrowing have jumped after the central bank was forced to hike its benchmark rate to 17 percent from 8.25 percent in September to rein in inflation and defend the lira, which had dived against the dollar.
“We benefited from the loans ... but it was short-lived,” said Ismail Kazanç, CFO of Turkish real estate firm Torunlar REIC, according to Reuters. “Plans for new projects are now hit by an increase in financing and construction costs, as well as fluctuating demand.
“We think the second half of 2021 will be better” as inflation and interest rates dip, he said.
Turkey’s construction industry used to be a main driver of economic growth in Turkey, as people flooded to cities from the countryside to benefit from better pay and living standards. But the sector had contracted for eight-straight quarters prior to the outbreak of COVID-19.
Sales of housing in Turkey almost halved in December. Transactions fell by 48 percent from a year ago to 105,981 units, the Turkish Statistical Institute said last week. Mortgage lending contracted by an annual 71 percent.
“Mortgage and commercial loan rates are expected to remain high,” said Tayfun Küçükoğlu, chairman of the Construction Materials Industrialists Association, according to Reuters. “Higher rates are likely to limit the performance of the sector in 2021.”
COVID-19 lockdowns and other measures to stem the spread of the virus will hurt business in the first quarter, said Can Fuat Gürlesel, an economist and consultant for business associations.
“Neither loan nor mortgage rates can support the sector, which means the financing side is not likely to boost construction either,” he said.