Big News for Property Prices in Turkey
At mytapu.com, our leading indicator of Turkish residential property prices has been very strong in the most recent two week period, increasing 30%. This has been unexpected in market conditions surrounding the pandemic, which are negative for property prices because renters’ ability to pay is reduced, and as rents decline, landlords sell, and new buyers postpone purchases.
Now we know why the leading price indicator has been so strong. The news is that policy makers have imposed upon state banks to offer a new mortgage loan program with extremely favourable terms. The terms are so favourable, they are equivalent to the banks paying buyers and subsidising buyers to purchase a property. Turkey’s three largest state lenders and two of their Islamic finance banks have now announced that they are delivering mortgages with annual interest rates nearly 4% below the rate of inflation, and 13% below the average annual decline of the Lira in foreign exchange terms for each of the last three years...
Mortgage rates below the 'cost of capital', whether it be inflation or foreign exchange rate depreciation, has a certain result of attracting investment flows and driving property prices higher.
Less than 12 months ago the mortgage rates in Turkey were a high as 24% When it became clear that policy makers intended to take the rate significantly lower, this economist forecast a reversal in the downward price trend. That forecast has materialised and prices are now moving higher. Before March the mortgage rates had declined to 12-14%. Today’s additional move down below 8% is another 30% decline and will most certainly have a large impact on the future trend of prices, higher.
The Turkish Lira mortgage loans will have up to 15 years' maturity with interest rates as low as 7.68% simple straight rate (not compounded, AER or APR) % and a grace period of up to 12 months, with a low equity-down payment rate starting at 10%, in other words, 90% loan to value (LTV). The loan limit per customer will be TL 750,000 (approximately $110,000) to ensure widespread availability, and will be available for residences in three major cities, namely Istanbul, Ankara and Izmir, with a maximum of TL 500,000for other cities.
The only impediment at this time is purchasers’ lack of down payment cash equity. This is likely to be overcome via family networks after some little time. The longer term impact is almost certain to be positive throughout the remainder of this year.
Needles to say, some agents and developers have raised prices immediately. There should still be room to manoeuvre, and the experienced Transaction Managers at mytapu.com are happy to show you where to find and buy property in Turkey, and how to buy at a discount...
The key point is that mortgage rates falling below 8% is likely to have a big impact on property prices, because 8% is a key mathematical threshold for repayment affordability. This was highlighted in this economists forecast of the Turkish housing market, published in Forbes magazine in 2007. The push by policy makers below the key 8% threshold is one further example of how mytapu is affecting policy making in the real estate market in Turkey. The other notable occurrence was the recent adoption by policy makes of new regulations requiring an appraisal report to be provided to foreign buyers of Turkish property, mentioned in this article Buying-Turkish-Property-Why-use-an-Eksper-Rapor.