The Turkish construction industry is currently navigating a period of cautious optimism, weighed down by a series of significant challenges. Among these are escalating costs, elevated interest rates, and erratic price increases, all of which have stalled the launch of new housing developments. The sector’s struggle to secure adequate financing has exacerbated the slowdown, leading to a noticeable drop in the issuance of building permits.
Sharp Decline in Domestic Construction Permits
Recent data reveals a significant contraction in the number of construction permits granted. In the second quarter of 2024, the approvals for buildings, flats, and total flat area saw decreases of 22.7%, 28.9%, and 30.9%, respectively. The total housing units approved during this period amounted to 137,210. This is the lowest second-quarter figure since 2009, barring the pandemic-affected year of 2019.
Strategic Shift Towards Global Markets
In response to the domestic market slowdown, Turkish construction firms are increasingly pursuing opportunities abroad. According to the Central Bank, Turkish contractors invested $253 million overseas in the first half of 2024, a significant increase from the $159 million invested throughout 2023. For comparison, only $50 million was invested in international projects during the first half of 2023.
Optimism for a Domestic Market Rebound
Despite current hurdles, many companies remain hopeful about the long-term prospects of the Turkish construction sector. Firms with confidence in the latent domestic housing demand are waiting for a more favorable economic environment, particularly the anticipated reduction in interest rates by the end of the year. Lower borrowing costs, expected in the first quarter of 2025, could trigger a resurgence in local construction investments.
Surge in Overseas Property Purchases by Turkish Investors
While sales of Turkish real estate to foreign buyers have slowed, individual Turkish investors are increasingly purchasing properties abroad. Central Bank data shows that Turkish citizens spent $1.2 billion on overseas real estate in the first half of 2024. This represents a dramatic increase compared to the $130 million annual overseas investment levels seen five to ten years ago, with projections suggesting this figure could reach $3 billion by year-end.
Decline in Foreign Investment in Turkish Real Estate
Conversely, the sale of Turkish real estate to foreign buyers has experienced a sharp decline, with a 42% drop in the first seven months of 2024 compared to the same period in 2023, totaling 12,811 units. Although projections indicate that sales to foreign buyers could generate between $2 billion and $2.5 billion by the end of the year, industry leaders, including the Real Estate Service Exporters Association (GİGDER), caution that Turkey’s real estate sector may face a current account deficit in 2024 for the first time.