The Decline of the Turkish Lira and Its Impact on the Real Estate Market in Turkey

By Justin Mays:

The value of the Turkish currency has gone south leaving interested investors wondering how to move forward and enter the market. While the Turkish Lira is witnessing major lows, it is coming across as an opportunity for foreign investors to invest in Turkish real estate at a lower price. 

The fall of the Lira makes it the ideal period for foreigners to have real estate ownership at the best prices ever. The country has always been an important source of investment and with the fall of the Lira, real estate seems to be further attracting buyers from abroad.

How is the Turkish economy?

With a GDP of roughly US$720 billion, Turkey is the 19th-largest economy in the world. It is an emerging market economy that enjoys investors' attraction from all over the world. The country is among the world's leading producers of agricultural products, textiles, motor vehicles, transportation equipment, construction materials, consumer electronics, and home appliances.

Turkey is mainly a free market whose economy is driven by its industrial and service sectors and traditional agriculture accounts for about 25% of employment. 

However, the Turkish economy is oscillating between the need to maintain macroeconomic stability and the need to obtain yearly growth, which results in a worsening economic recession. The bright side of Turkey’s currency depreciation is that foreign investors are finding Turkish companies more attractive, which could justify the upward trend in foreign investment.

Real estate investments and economic growth in Turkey

Turkey’s real estate market is one of the most important economic areas. Due to the global epidemic and Lira devaluation, international investors have become more interested in Turkish real estate. The real estate market of Turkey has recently witnessed rapid growth due to a surge of international investors. 

The Turkish real estate sector has a significant impact on its economic growth which is strengthened by property purchases by foreigners. The Turkish Lira has been declining for some time, but the Turkish economy continues to perform. Effective rules and regulations safeguard real estate in Turkey. 

Real estate investment in Turkey is considered a genuine opportunity due to good infrastructure, a supportive legal system, and a sound economic design. However, the Turkish economy is not immune to global economic crises. 

Why is the Turkish Lira falling?

The Turkish Lira has been depreciating for a long time. Earlier, it took two Liras to buy a U.S. dollar in 2014, and today, it takes more than 13 Liras. According to World Bank data, Turkey’s broad money supply rose by 3.5 times (approx) between 2014 and 2020. This has caused the value of the Turkish lira to drop against the U.S. dollar. The demand for a currency, too, can affect its value. 

• The 2018-2022 Turkey debt crisis was caused by the Turkish economy's excessive current account deficit and large amounts of private foreign-currency-denominated debt. The Turkish lira has lost around 40% of its value and the citizens are struggling.

• The real estate growth is touching the sky, the domestic demand for housing is too high and the imports are also increasing. 

Turkish Lira’s depreciation effects on the real estate market

Foreign investors are the biggest gainers from the Turkish market because of the benefits and incentives granted to them by the Turkish government for buying properties. The biggest incentive is the purchase of a property worth USD 400,000 for Turkish citizenship. In this case, the Turkish side will benefit in some way because it is based on foreign investments.

Turkey remains one of the most promising real estate markets for foreign investors despite the decline of the Lira. Foreign direct investments in the real estate sector alone constituted 57% of total FDI in 2020.

Why do home buyers choose Turkey for investment?

Reasonable prices

The real estate prices in Tukey are very competitive compared to many other countries. The properties are reasonable prices for the investors.

Citizenship opportunity

The government declared that foreigners who buy a property worth $400000 and more are eligible to apply for Turkish citizenship for themselves and their families.

Low cost of living

The cost of living in Turkey is very affordable for a common person and is said to be lower than 62.7% of the U.S.A. An average family spends only $1200 every month (without rent) to live nicely. 

Lower property tax

The property tax in Turkey is just 0.001% which is below the average for the world’s tax percentage. 

Modern construction

Several construction companies in Turkey are adopting new technologies to improve the quality and infrastructure. 

Great location

Turkey has a geographical advantage. It’s a bridge between the east and west. Hence, more business. The beautiful climate adds to the attraction. 

Investors’ paradise

The fluctuation of the Lira against the Dollar and Euro encourages investors to buy Turkish real estate. Despite the increasing population, the demand for real estate is more than its supply thereby generating high returns on selling and renting. 

Are property prices increasing in Turkey?

Turkey's depreciating currency has increased real estate sales in a short period. Foreign investors are more interested than ever and taking advantage of the profitable currency exchange rate. Investments skyrocketed when news of the currency devaluation made headlines around the world. The investors began booking flights to Turkey or calling up various real estate brokers to purchase properties in Turkey. 

Increased foreign investment intensity can explain the country's increased cash sales. Every decline in the Turkish lira brings massive profits to the investors because they buy in their currency. However, with a rise in demand, sales prices will also rise. Also, because the construction supplies are imported, this adds to the price rise as well. 

When it comes to investment, the Turkish housing market will always be a solid option. International investors usually gain a lot from exchange rate fluctuations. Since Turkey is also attracting investment from Europe and the Middle East, the high demand has increased property prices. 

Reasons for the increased property prices in Turkey

Because the demand is increasing the supply, the house prices in the country are increasing rapidly. Foreign investors are eyeing all the good investments and, residents are struggling to find affordable housing. Many factors have contributed to the increase in the demand for Turkish properties this year which, in turn, caused property prices in Turkey to increase as well. Let’s discuss this in detail.

• Citizenship by investment: The Turkish government has declared that a foreigner gets the right to apply for citizenship in the country if he/she makes a property investment of $400,000 and more. This led to a jump in the number of buyers and property prices. Getting a residence permit by real estate has attracted investors from Russia, Iran, Iraq, and other countries. 
• Property "only" as an investment: People started buying property to safeguard themselves against inflation. Considering the market scenario and decreasing interest policy, the investors were no longer in favor of keeping their money in the bank. The decreasing interest policy and significant inflation pushed investors to look for a substitute and hence, the demand for real estate expanded. People started purchasing properties not to live in but as a profitable investment.
• Demand and supply of land: With the increase in urbanization and foreign investment, there has been less land every year to build on. As a result, the cost of land has risen in the past couple of years. Due to the shortage of land, the developers are left with no choice but to pay up dollars for the available plots which eventually pushes the property price. This is especially in premium locations like Antalya and Istanbul. 
• Growing demand for residential properties: The craze and demand for the Turkish housing market can be seen in the sales figures during the pandemic. Even the global epidemic could not put brakes on the foreign purchase of property in Turkey. Investors went online, started taking virtual tours, and bought Turkish properties.
• Cost of building materials: The price of the property also includes the cost of the building materials. As discussed, the construction supplies in Turkey are imported. Both the inflation and Covid times caused the prices to climb high. The overall increase in prices ultimately increased the cost rise per square meter by multiple times. 
• Luxurious construction: Earlier, the constructions were done as per the standard style, but now it differs from every individual development. Now, the construction needs to offer a unique point that makes it notable in the competitive market. Once it was considered a luxury to have a gym, pool, playground, cafes, and other amenities on the premise but now it's more of a regular demand. These facilities increase the overall price of the property. 
• Simple financing options: With Turkish banks willing to offer finance to locals and foreigners alike, it has become easier to be one of the property holders in the country. Those who were restricted by the lack of finance can now enjoy home ownership. All the interested investors are jumping in the purchase wagon because they don't want to miss a chance. 

Government for the local citizens

Shortage of supply is a big reason for rising property prices. The country needs around 80,000 new homes every year to meet the demand. A shortage of housing is making house prices to increase by more than 10 % which is not good. On top of it, construction costs have increased enormously, adding to the imbalance.

To bring the situation under control, the Turkish government is making the housing market more affordable and accessible for most of the locals. The 2023 Vision Plan of the government aims to revamp the economy, with a detailed plan to promote the construction industry. Developers will be facilitated to construct modern buildings. 

Turkey’s real estate market has always been a lucrative property investment option for foreigners. If you wish to invest in Turkish real estate, Prime Property Turkey is here for you with years of experience, wonderful properties, a multi-lingual team, and reliable legal assistance.

Get in touch with us today!

More to read from us: