In November 2024, Turkey’s Housing Price Index (HPI) rose by 2.8%, reaching 155.4 points, marking the steepest monthly increase in three months. On a yearly basis, house prices soared by 29.4%, though inflation-adjusted figures revealed a 12% real decline. This indicates that rising nominal prices are failing to outpace inflation, a persistent issue in Turkey’s economy.
Despite an official interest rate of 50% and banks being reluctant to lend, house prices in Turkey continue to defy expectations. This paradox raises a crucial question: what is driving demand in such a challenging economic environment?
Big Three Cities Lead the Surge
House prices rose across Turkey’s major cities in November. Ankara saw the sharpest monthly increase at 3.4%, followed by Istanbul at 2.9% and Izmir at 1.9%. On a yearly basis, Ankara led with a 34.8% increase, trailed by Izmir at 26.7% and Istanbul at 26.2%. These figures suggest a bustling property market despite economic headwinds.
Theories Behind the Housing Boom
Readers and analysts have proposed several explanations for this resilience:
- Expectations of Future Price Hikes: The major driver behind the surge is classic FOMO (Fear of missing out). With interest rates so high, many would be buyers have kept cash in savings accounts earning up to 50% interest. With strong rumours of interest rate reductions in early 2025, these savers are moving into property as lower rates will inevitably drive prices higher.
- Cash Buyers Dominate: With mortgage lending almost frozen due to very high interest rates, cash-rich investors seem to be driving the market. Speculation about developers conducting fictitious sales has also surfaced.
- A Safe Haven for Wealth: With inflation eroding savings and the Turkish lira losing its appeal, real estate remains one of the few reliable investment options. Wealthy buyers, including foreign investors, are snapping up properties as a hedge against instability.
- Rental Market Pressures: Skyrocketing rents have prompted investors to buy properties to capitalize on lucrative rental returns, further fueling demand.
- Social and Economic Factors: Internal migration, and housing supply concerns after the major earthquake in 2023 have all put pressure on the property market.
The Bubble Debate
Some analysts warn that Turkey’s housing market may be one of the world’s largest speculative bubbles. Dollar-based prices are historically high, prompting fears of a potential correction. Still, many argue that Turkey’s chronic housing shortage, coupled with ongoing economic unpredictability, could sustain the price surge. With buying activity at an all time low, prices have remained relatively stable due to heavy demand in the major cities. With falling interest rates, prices are expected to climb higher – this seems to dispell the theory that prices are in a bubble. Expectations are that current pricing as of Q4 2024, are the lowest it will be.
Looking Ahead
With December historically being a high-transaction month, Turkey’s real estate market appears poised for continued volatility. Whether driven by speculative behavior, genuine demand, or market distortions, one thing seems certain—Turkey’s housing market remains an enigma in a world of rising risks and shrinking affordability.
