Istanbul Property Prices: Potential Decline and Key Influences

The earthquake in Kahramanmaraş had a big effect on Turkey’s real estate, especially causing property prices to drop, especially in earthquake-prone Istanbul. Experts like Isaac Hassoone said that if a big earthquake, like a 6 or higher on the Richter scale, hits Istanbul, prices for old buildings could fall by 40-50%, but new buildings could go up by 60-70%. This warning matches what we’re seeing in the real estate market—foreign property sales in February dropped by a big 27% compared to the year before, the lowest in almost two years.

• The decrease in foreign property sales, shows a real effect on property prices. People looking to invest are being more careful and choosing safer areas, which is bringing down property values overall.
• Turkish government plans legislation for earthquake preparedness in Istanbul, focusing on building safety and urban transformation. They want to fix areas like Bağcılar, Bahçelievler, and more, making sure changes are fair for property owners.
• Critical districts like Bağcılar, will be having construction of 4,500 houses is imminent, with increased rental assistance to encourage building renovations. Financial mechanisms aim to make the transformation process manageable for property owners while enhancing the city’s resilience to seismic activity.

America’s Central Bank and Interest Rates

1. Driver of U.S. Interest Rates: The recent surge in U.S. interest rates, notably a 5-percentage-point increase by the Federal Reserve, is primarily attributed to “reaction shocks,” accounting for nearly 60% of all shocks from early 2022 to May 2023, as highlighted by the World Bank study.
2. Reduced Asset Appeal: Higher U.S. interest rates decrease the attractiveness of assets in emerging markets, leading to reduced financial inflows.
3. Increased Borrowing Costs: Emerging markets face elevated borrowing costs due to the rise in U.S. interest rates, dampening demand for loans.
4. Exchange Rate Pressure: Capital outflows trigger depreciation in the exchange rates of emerging market currencies against the U.S. dollar.
5. Import Inflation: Depreciation raises the cost of dollar-denominated imports, contributing to inflationary pressures in emerging markets.
6. Vulnerabilities Based on Conditions: Countries with higher sovereign debt levels face increased vulnerability, with more at-risk economies experiencing larger local-currency yield increases, as indicated by World Bank research.
7. Challenges in Emerging Markets: The share of emerging markets with sovereign spreads exceeding 10 percentage points rose from 13% in December 2021 to 26% in May 2023, signaling challenges in borrowing from international markets.

Turkish Central Bank and Interest Rate Dynamics

Turkey’s central bank has implemented another interest rate hike, raising the policy rate by 5 percentage points to 40%. In an effort to combat soaring double-digit inflation, which reached 61.36% last month. This marks the sixth consecutive hike aimed at stabilizing the economy. Also making essential goods more affordable for households. Despite the aggressive tightening measures, the central bank has indicated that the rate hikes will soon come to an end. Asserting that the current level of monetary tightness is nearing the threshold required for establishing a disinflationary trajectory.

The unconventional approach of Turkish President Recep Tayyip Erdogan. Who has historically favored cutting interest rates to address inflation, has been criticized for contributing to economic challenges, including a currency crisis and a rising cost of living. Recently appointed economic officials, including Finance Minister Mehmet Simsek and Central Bank Governor Hafize Gaye Erkan, are steering a shift in policy, reversing the previous strategy of keeping interest rates low.

• Credit Card Trends: 226.65% surge in credit card expenditures, along with debts reaching 2.3 trillion Turkish liras ($85.3B), points to financial strain, creating a potential “buy zone” for real estate investors.
• Government Policies: Central bank’s 250 basis points interest rate hike (now 17.5%) and potential austerity measures can impact the real estate market, offering strategic opportunities for investors.
• Infrastructure Development: Ambitious projects like the Istanbul Airport and Yavuz Sultan Selim Bridge enhance property values, positioning Turkey as an attractive market for long-term real estate investment.

Market Sentiment:

• CEO Cameron Deggin’s forecast of a market slowdown from 2023 to Q2 2024 indicates prevailing cautious sentiment.
• While short-term market slowdown is expected, it presents an opportunity for long-term investors to enter during the buy zone.
• The rising foreclosure rates and economic policy changes present a complex scenario for real estate investors. Economic distress may lead to reduced Istanbul Property Prices, offering an opportunity time for investment.
• High inflation, increasing interest rates, and careful consumer behavior are affecting the market mood. The recent uptick in inflation and changes in central bank policies suggest a cautious outlook, possibly slowing down the market briefly. However, for long-term investors, this slowdown can be a good chance to invest in