Construction again the hope of the economy in 2016

Mustafa Sönmez - mustafasnmz@hotmail.com

Turkey’s growth rate for last year will be disclosed at the end of March by the Turkish Statistics Institute (TÜİK). 

Estimates are that nearly 4 percent growth was achieved, meaning a continuation of the average 3 percent growth tempo experienced in 2012 and after. The growth rate forecasted for 2016 is 4.5 percent but this has been considered an optimistic target; several institutions and authorities agree that growth between 3.5 percent and 4 percent will be achieved. 

When a growth rate reaching 5 to 6 percent on average in previous years is taken into consideration, growth has slowed down in recent years. However, considering the global situation, it is frequently referred to as, “Thank God for this.”

Wind from construction 

The 4 percent growth is totally domestic market based. In other words, it is growth created by domestic demand; foreign demand and net exports do not contribute to growth. Public expenditures are not very effective in domestic demand, as mostly the main winds of growth are the consumer demands of households and the construction-based investments of the private sector.


The share of construction in private investment expenses, as well as household consumptions for houses, shows that construction again played an effective role in growth in 2015. When these two categories are summed up, they constitute nearly 17 percent of national income. 

In national income calculations, in terms of expenditures, we see that food and beverage expenses have a contribution of around 20 percent. This shows that construction is the second most important item.

Machinery investments are third place with almost a 13 percent share, while household transportation and communication expenses take fourth place with 11 percent. Public consumer expenses have a share of 10 percent in national income. This also reminds us again of the role of construction in the growth of recent years.    

The annual increase in home consumption and construction expenditures has had an up-and-down course in recent years. Construction expenses, mostly homes, grew 2.4 percent in 2014, and then they were estimated to have reached 6.1 percent in 2015, exceeding the 4 percent general growth rate. 

In 2015, it is understood that there was not much of an appetite to launch new construction projects, as the focus was on selling the current stocks. As a matter of fact, this can be seen in the number of applications for building permits. In the first nine months of 2014, buildings permits for 820,000 units were requested while in the same period of 2015 this figure went down to 620,000 units.  


House sales 

On the other hand, 2015 was a year when house stocks fell and house sales increased compared to 2014. According to TÜİK data, in 2014, 1.165 million houses were sold; in 2015 this figure increased 11 percent to nearly 1.24 million. 

In house sales, in 2015, Istanbul had the highest share with 18.6 percent and nearly 240,000 units sold. The capital Ankara came next with an 11.4 percent share and nearly 147,000 sales while the Aegean city of İzmir came third with a 6 percent share and nearly 78,000 sales. 

In Turkey in general, 46 percent of total house sales in 2015 were new houses. In 2014, new houses again constituted 46 percent of total sales. 

Even though a higher target was aimed for, house sales to foreigners had a very low course. In Turkey in general, nearly 23,000 houses were sold to foreigners in 2015. According to Central Bank data, property sales to foreigners including houses reached $4.3 billion. This figure was $4.1 billion in 2014 and $3 billion in 2013.    

House sales to foreigners increased 20.4 percent in 2015 compared to the previous year. In sales to foreigners in 2015, Istanbul topped the list with 7,493 houses, while southern Antalya came next with 6,072 houses. The northwestern provinces of Bursa and Yalova followed, with 1,501 and 1,425 houses, respectively. 

Among foreigners, those of Middle Eastern origin bought the most in Turkey. Iraqi citizens bought 4,228 houses in Turkey in 2015, while Saudi Arabian citizens bought 2,704 houses and Kuwaitis bought 2,130 houses. Russians bought 2,036 houses and U.K. citizens bought 1,054 houses. 


Houses for investment 

It was observed that Istanbul was by far the leading location in housing production and sales; it is also a noteworthy trend that a significant portion of house sales were not for residing but for rental purposes and the high return expected. 

Only 35 percent of houses sold were mortgaged, in other words bought with loans. This demonstrates that two-thirds of the purchases were made without loans. 

The increases in housing prices, in other words the annual return of a house investment, has a higher course than other options and this accelerates the demand for houses as an investment tool. 


According to Central Bank data, in 2015, housing prices in Turkey in general increased nearly 19 percent, exceeding the 14 percent increase in 2014. While inflation was 8-9 percent, the increase in housing prices had a real return of 6 points. Especially in Istanbul, where 20 percent of house sales occurred, the price increases were quite remarkable. 

In Istanbul, house prices increased around 26 percent in 2015, exceeding inflation by 18 points. While even the dollar/Turkish Lira exchange rate had an increase of around 24 percent, the fact that Istanbul housing prices had a higher course explains why demand for houses for investments was high. 


2016 forecasts 

In 2016, while the world economy is struggling with a series of uncertainties, it is obvious that Turkey has taken and will take its share from this negative climate. Turkey experienced a year in 2015 with low foreign capital inflow when it absolutely needed foreign capital; the country does not have the luxury to repeat this in 2016. Alongside economic fragilities, domestic political tension and most importantly the high geopolitical risk in the region do not portend a positive year for Turkey. This also means that the targeted 4.5 percent growth is highly optimistic.

Despite this, construction remains a possible leg for the economy to stand on, as the highness of its return in particular keeps the demand high for units for investments. This is an important wind for the sector. Also, ongoing urban transformation projects are important leverage for the sector. In urban areas, 178 zones where almost 1.5 million people live covering 8,000 hectares have been declared “risk zones.” Nearly 90,000 buildings, including residential buildings and offices, have been deemed risky. The fact that all of them will be renewed is an important business opening for the sector and the financial support of official authorities is a significant opportunity.  

All of these are signs that during an otherwise cloudy 2016, the best sector, relatively, will be construction. But, nevertheless, this does not mean that construction alone is the main support beam which the economy will rely on.