Construction firms see more ‘predictable market’ ahead
ISTANBUL
The cost increases that remain below inflation are encouraging construction companies to launch new projects, say representatives of the industry, adding that now conditions have become “more predictable.”
For the past two to three years, the construction sector has suffered from rising costs and a labor shortage crisis.
However, the latest numbers indicate that this situation may start to have reversed.
According to data from the Turkish Statistical Institute (TÜİK), the construction cost index increased by 23.94 percent annually in February. This marks the lowest increase in the last 51 months, with the rise remaining below inflation. In February, the annual inflation rate was 39.1 percent.
After the devastating earthquakes in February 2023, workers went to the affected areas to work on projects there, leading to a serious labor shortage in the construction sector.
Despite wages exceeding white-collar salaries, they were unable to find workers, causing delays in operations, representatives of the industry said.
But there has also been some improvement on that front.
The annual increase in labor costs, which exceeded 100 percent in the first half of 2023 and 2024, first dropped to around 50 percent, and it slowed to 32 percent in February.
The outlook has been improving in terms of costs and labor shortage, said Engin Keçeli, chairman of the Board of the Association of Contractors and Real Estate Developers (İNDER).
Material producers engaged in unrealistic pricing during periods of exchange rate volatility, leading to an extraordinary increase in costs, he explained.
“Today, due to the combination of the stability in the exchange rates and the decline in demand have significantly slowed the rise in material prices,” he said.
As construction projects in the earthquake-affected region near completion, workers have started returning to major cities, which has helped curb labor costs, according to Keçeli.
“In the past months, companies could not figure what the costs would be. Now, this uncertainty is over. This will pave the way for new projects and give businesses the confidence to invest,” he said.
Despite the more favorable environment for construction companies, Keçeli does not expect house prices to decline soon.
The primary factor determining housing prices is the cost of land, and there has been no decline in land prices, he explained.
“Moreover, developers have not been able to fully reflect cost increases in prices over the past two years. To deliver projects on time, they sacrificed their profit margins,” said Keçeli, adding that a slowdown in the rate of cost increase does not mean costs have decreased; rather, it indicates that they are no longer rising as fast as before.
“All these only mean that there probably will not be significant increases in home prices,” he said.
