Throughout 2011 the REIDIN/GYODER index showed that Turkish prices were growing steadily at around 6% year on year across its monthly index releases. Six percent is not a great deal, especially compared to the 20-30 percent per year that came to signify a hot market during the boom, but of course, with the benefit of hindsight we can now see that such growth was in fact too hot.
But Turkey is a hot market. With one of the fastest growing populations in the world, one of the fastest growing economies in the world and growing access to mortgages, demand for property in Turkey is soaring. The major cities are particularly hot as they are seeing massive migration from rural areas to find better employment, in fact, in Istanbul developers report demand growing far faster than they can keep up with.
So, why aren’t Turkey property prices growing faster? The answer, because the Turkish authorities do not want them to. Turks know as much about a boom bust cycle than anyone, in fact the Erdogan party came in on a wave of discontentment at Turkey’s violent lurches from prosperity to recession. Erdogan’s AK Party went to great lengths to sure up the banking system, including increasing foreign exchange reserves, and an office of the central bank in every bank branch in the country.
Turkish banks control the rate that Turkish property prices grow at, because they lend based on their own valuation of a property’s worth. Whereas in the likes of the UK an estate agent plucks an asking price from the air, based as much on what the market will support as any true measure of worth, and then the bank lends, 70%, 80% or whatever the LTV is as a percentage of that amount. But in Turkey, potential buyers request a mortgage, the bank does its own valuation and then lends on that figure.
Both banks and estate agents profit more from rapid property price escalation in Turkey and the UK. The difference is the central office control over bank operations in Turkey. In fact, in the UK the banks would probably see prices rise just as fast as estate agents do during up cycles, but in Turkey the focus is on stability and the Central Bank is under orders not to let anything derail it.