4 May 2014

Turkey Housing Buffeted by Rising Rates With Turmoil: Mortgages


The rows of new brick and concrete high-rise apartments in the Esenyurt district, a hub of Istanbul’s property boom, now provoke anxiety in the salesman who’s struggling to fill them.

“In the summer, we were selling as many as 15 apartments per month,” said Ali Acik, a realtor at Exper Gayrimenkul, whose office sits among the housing. “Now we’re down to five, six. We try to make ends meet, and hope for lower interest rates.”

Turkey’s housing expansion, with almost 6 million units created in 10 years, is slowing as borrowing costs soar. They jumped on the Federal Reserve’s plan to taper U.S. bond purchases and the Turkish central bank’s more than doubling of its benchmark interest rate. Mortgage rates rose to 13.9 percent in April from a record low of 8.3 percent in June 2013, according to data compiled by Bloomberg. That has put the brakes on housing sales and threatens Turkey’s economy.
Story: The Housing Rebound Stalls

“The rise in mortgage rates is quickly seen in construction, an industry that can rapidly reflect an economic slowdown,” said Ibrahim Aksoy, chief economist at Gedik Investment in Istanbul. “It creates temporary jobs. It has the potential to make the whole economy more vulnerable.”

Turkey’s economy is slowing. It will expand 2.25 percent in 2014 compared with 3.9 percent last year, according to a Bloomberg survey of 30 economists. In January, the unemployment rate rose to 10.1 percent, the highest since March 2013.
Sales Plunge

Tamer Ozyurt, chairman of a closely-held construction company in Istanbul, said mortgage costs are having “a serious impact” on housing developers.

“Sales are down about 50 percent compared to last year,” said Ozyurt about his company, Ozyurtlar Insaat ve Yapi Malzemeleri Sanayi Ticaret AS. (KRDMD) “Buyers are waiting. Last year we were selling about 100 units a month. Since the fourth quarter of 2013, we’re down to 50s.”

Emre Kara, an advertising executive and father of one, said he stopped his search for a 350,000-lira ($164,000) apartment in Istanbul’s central Kadikoy district in December after borrowing costs rose.

“I won’t buy at these rates,” Kara, 41, said. “I want to pay as low interest as possible. So I’ll either wait for rates to decline to mid-2013 levels or I will borrow from friends or relatives.”
Istanbul’s Transformation

Turkey’s decade-long housing boom transformed many parts of Istanbul, the nation’s commercial center of 14.2 million residents. On the city’s outskirts, mass housing projects replaced the squalor of shantytowns. Luxury residences and shopping centers turned old central neighborhoods into bustling hubs of consumption.

Declining mortgage rates fueled these developments. They fell from as high as 31.5 percent in May 2004 to a low of 8.3 percent in the middle of last year.

Prime Minister Recep Tayyip Erdogan has said he favors a “zero real-interest-rate policy.” His Justice and Development Party, or AKP, which has campaigned on its record of promoting homeownership, hasn’t lost a single election since it came to power in 2002.

Successive AKP governments cut public debt, privatized industries and reined in price increases. Inflation has declined steadily since the start of 2002, when it stood at 73 percent. Even so, April’s rate of about 9.4 percent was the highest in two years, according to data released today by the government’s statistics office in Ankara.
Investment-Grade Rating

Turkey received its first investment-grade rating in 18 years from Fitch Ratings in November 2012, followed by Moody’s Investors Service in May last year.

On the fringes of Istanbul, the government agency Toki and private developers collaborated to build apartments on vast swathes of land. Toki has created more than 623,000 housing units in the country since 2003, helping to create 900,000 jobs, according to its website.

The relatively cheap mortgages came under pressure last May, as foreign investors began to flee Turkey. The Fed’s signal that it might reduce stimulus coincided with street protests against the government’s plan for Gezi Park in Istanbul. The demonstrations spread across the country after police on May 31 attacked protesters at a sit-in who opposed the proposal to destroy the park and build a shopping mall.

Investor concerns about political instability increased in December, when police arrested the sons of cabinet ministers. The arrests revealed a corruption investigation by Istanbul prosecutors.

Overseas Investors

In less than two weeks in December, the yield on benchmark government bonds climbed to more than 10 percent from less than 9 percent, and the Borsa Istanbul 100 (XU100) equity index dropped 15 percent. By Jan. 27, the lira had plunged to a record low of 2.39 per dollar from as high as 1.75 at the start of 2013.

After attracting foreign investors in search of higher yields, Turkey’s markets are going through normalization, said Gokhan Uskuay, a strategist at Global Securities in Istanbul.

“The month of May last year was the moment where interest rates bottomed out worldwide,” Uskuay said. “The era of abundant hot money is ending” with the Fed starting to trim asset purchases in January, he said.

After Turkey’s central bank in January raised its benchmark rate to 10 percent from 4.5 percent, housing sales began to drop. In the first quarter, they fell 5.9 percent to 257,853 units compared with the same period last year, data published by the statistics office show.
Interest Rates

Outstanding home loans rose 1.7 percent this year as of April 24, compared with 8.6 percent in the same period in 2013, according to the banking regulator in Ankara.

Turkey’s central bank will keep interest rates unchanged until at least the final quarter of the year, according to Per Hammarlund, chief emerging markets strategists at Skandinaviska Enskilda Banken AB in Stockholm, Sweden.

“They may wish to cut rates, but they could even be forced to do the opposite,” Hammarlund said.

Nazan Baskalem, sales director of closely-held builder HYT Insaat Tekstil Sanayi ve Ticaret AS, said Turkish investors paying cash for housing are keeping demand strong in Istanbul’s rapidly developing Beylikduzu district. In mid-April, HYT was selling the final 20 apartments in its 255-unit “My Family” project.

“If you buy an apartment at 250,000 liras today, you may sell it at 300,000 a year later,” Baskalem said. “There’s abundant demand from investors.”
Less Demand

Acik, the Exper Gayrimenkul realtor who sells to owner-occupants in the former village of Esenyurt in western Istanbul, sees much less demand. He has 500 units on sale out of about 4,600 created by city-owned Kiptas. Esenyurt’s population jumped to about 625,000 last year from 373,000 in 2008.

The most popular homes, which are about 75 square meters (807 square feet) and cost 120,000 liras, may take a month to sell. The bigger apartments, priced at as much as 345,000 liras, may be on the market for six months.

“Not many people can afford bigger ones anymore,” he said.

Source: www.businessweek.com

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