Turkey: Despite Covid-19 housing transactions historically peaking

In the midst of the pandemic, Turkey’s housing transactions are booming. Here is the answer why.

Written by Prof. Ali TUREL, EECFA Turkey

The pandemic in Turkey

Covid-19 has caused various problems in the Turkish economy, like in many other countries. The Government had to introduce a series of precautionary measures from mid-March onwards. Schools, universities, and many commercial establishments were closed. Factories and most construction sites had to stop work or reduce the number of workers. Many people lost their jobs that had to be compensated by the Government through allocating large sums of money. Many establishments got into financial difficulty, and rescue plans had to be put into effect in the forms of providing loans and deferring tax and other payments to public institutions. Demand for many goods and services, including real estate, shrank under the Covid-19 pressures.

Industrial production slumped by 6.8% in March, 30.4% in April and 19.5% in May 2020 from the same months of 2019. Some recovery occurred only in June by a 17.6% rise from the previous month and a 0.1% growth from the same month of 2019. Building construction was also hit by Covid-19, as at the end of Q1, building construction permits in floor areas total were 11.4%, occupancy permits 41.1% down from Q1 2019. The number of completed dwelling units was 152 thousand with a 39.5% drop against Q1 2019.

Building construction industry also appears to enter the recovery process in Q2 with a 40.8% growth in the first 6 months of 2020 from the same 6 months of 2019. Completions, however, registered a 32.5% falloff in January-June 2020 compared to the same period in 2019, most likely because of the Covid-19 effects, although there are big backlogs of construction in almost every segment. The completed number of dwelling units with 269 thousand was about 70% of the 6-monthly rise in the number of households in Turkey.

Stimulus measure

In a bid to stimulate housing transactions, the Government introduced a measure in June 2020, according to which the loan-to-value ratio in residential mortgage loans was increased to 90%. The three state-owned banks were to offer mortgage loans under market interest rates and with a longer repayment period: 0.64%/month for new housing, 0.74%/month for used housing, both with a 15-year repayment period when the annual rate of increase in the Consumer Price Index was 12.62% in June 2020.

The stimulus measure greatly influenced the national housing market. The number of dwelling units sold in March-April 2020 came down to 42,8 thousand and 50,9 thousand, respectively. After the announcement, 190 thousand dwelling units were sold in June and 229,4 thousand in July, implying 209.7% and 124.3% rises from the same months of 2019, respectively. The number of transactions in July was the monthly historical peak, while in June the second monthly historical peak in Turkey.

In June and July 2020 together, 419.369 dwelling units were sold, 232.222 of which (55.4%) on mortgage loans. It is possible that not all applicants were able to use these credits. The ratio of mortgage financed housing to total housing sold was 12.5% in the same two months of 2019. Equity financing was still important with a 44.6% share (187.144 dwelling units) in June and July this year. It appears that people consider investing on housing as a hedge against inflation when all commercial banks offer negative real interest for deposit accounts. 

It has been a much-discussed issue in the media whether offering mortgage loans by state-owned banks under market interest rates would contribute to the clearance of the unsold newly built housing stock. The total number of first sales in June and July 2020 together was 126.569, 30.2% of total sales. The relatively higher price of newly built housing than that of the existing housing stock could be a factor keeping first sales at a 30% level. A media outlet suggests that about 24% clearance of the stock occurred by first sales in June and July this year.

The policy of offering mortgage loans under market interest rates contributed to the big revival of housing demand that had greatly decreased due to Covid-19. Since an interest rate subsidy at that level would unlikely continue for a long time, it will be interesting to see how the housing market will return to its usual course in the following months.

Construction forecast for Turkey is available in the latest EECFA Forecast Report Turkey which can be purchased on eecfa.com

Slovenian public housing scheme kicks off

A boom in residential construction is underway in Ljubljana, Slovenia, having a knock-on effect on real-estate prices in the whole country. It will still not be enough to change the trend of rising residential real estate prices and rents. To offset the unaffordable luxury apartments, there is a national policy to build public housing.

Written by Dr. Ales Pustovrh – Bogatin, EECFA Slovenia

 

Residential boom in Ljubljana, Slovenia – but can people afford luxury apartments?

After almost a decade of the worst crisis in residential construction in the history of Slovenia, residential construction has turned the corner. Most of it is due to very ambitious plans for constructing new multi-dwelling units in the capital city of Ljubljana. Several smaller developments of luxury residential properties commenced in 2018 and 2019, but their prices are usually too high to impact the price level and availability of housing in the whole city. While a total of almost 1500 new residential units are in planning phase or under construction currently in Ljubljana, only 500 will be completed before the end of 2020 – and most of them will be prized in the luxury range of EUR 4500 – 6000 per square meter, and thus, inaccessible for the majority of the population.

Even so, demand is likely higher. Before the crisis, an average of 1500 units was sold annually in Ljubljana. With the much-improved economic situation in Slovenia, full employment and easily accessible credit, demand for apartments, in Ljubljana in particular, has very likely returned to that level. Reasonably priced apartments for young families are especially in short supply due to lack of new construction.

The latest EECFA Slovenia Construction Forecast Report with analysis and forecast on the housing market up to 2021 can be ordered on EECFA’s website

Public housing scheme – is it viable?  

For that reason, both the local municipality and the national government decided to significantly increase the construction of public housing. They have started the construction of 672 new dwellings at the Novo Brdo neighbourhood that will be completed in 2 years. The National Housing Fund of the Republic of Slovenia, which is building 498 of them, has obtained a loan of EUR 50 million from the Council of Europe Development Bank (CEB) for the construction of more than 800 dwellings across Slovenia, most of them in the Novo Brdo development in the western part of Ljubljana. The local municipality of Ljubljana will construct another 174 dwellings. All of them will be available for rent with rental prices of EUR 6-8 per sqm. The size of the dwellings will be between 30 and 80 sqm. The total value of this construction investment will be EUR 56.8 million.

There are plans to add thousands more dwellings in the next few years – 10000 new dwellings available for rent to young families by 2025 according to the national housing policy. If the policy proves to be successful, it will increase the supply of dwellings in Ljubljana by almost 10%. This would certainly have a major effect on real estate prices in Ljubljana. As Ljubljana represents more than half of the residential market in Slovenia, it also acts as an anchor for residential prices and rents – so a higher supply and lower prices of dwellings in Ljubljana would lower demand for dwellings in the rest of Slovenia as well.

However, this might be impossible. The national housing policy Continue reading Slovenian public housing scheme kicks off

Russia’s mortgage boom

Written by Andrey Vakulenko – MACON Realty Group, EECFA Russia

The Russian residential market will long be the driving force behind the whole construction sector due to the continued high demand of most of the country’s population for improving their housing conditions. Mortgage loans, the most common means for purchasing homes in Russia in recent years, have finally strengthened, which compensates for the crisis years of 2015-2016 in Russia. As there has been a major drop in the population’s income, and it persists, mortgage lending is the only way to increase home purchases. The mortgage market easily overcame the crisis of 2015-2016 in Russia and already in 2017 exceeded the peak indicators of the pre-crisis year of 2014. During the first half of 2018, the trend towards growth further strengthened: the volume of issued mortgage loans rose by 68%, and its share in the total number of housing transactions reached a record 54% in the primary market. All this shows the current high demand for mortgage loans.

To explain the explosive growth in mortgage lending, the fundamental factors shaping the housing market need to be considered:

  1. Level of individuals’ living space provision (sqm/person);
  2. Demand for housing (how much more housing needs to be built, so that the level of living space provision can reach an acceptable value – about 30 sqm per person);
  3. Affordability of housing for purchase (the ratio of the income of buyers and the price of real estate).

As per the Federal State Statistics Service of the Russian Federation, to date, the total housing stock in Russia is about 3.4 billion sqm, only slightly more than 23 sq km in terms of the country’s permanent population (146.9 million as of January 1, 2018) per person. This level can be considered low compared to most developed foreign countries (39 sqm/person in France and Germany; 70 sqm/person in the USA, 76 sqm/person in Canada). Minimally comfortable living conditions are achieved with a security level of at least 30 sqm/person as per the social standards of the United Nations, and it is the target of public housing programs in Russia. To ensure that the population’s living space has reached this target, while maintaining the country’s population at the current level, another 1.0 billion sqm of living space should be built. Thus, the low level of housing provision is the guarantor of the preservation of demand for new housing projects for a long term.

The second factor ensuring long-term demand for housing is the quality of the existing housing stock, which has more than 33% (or about 1.2 billion sqm) of housing built before 1970. Even with the record volumes of housing construction registered in Russia in recent years (in 2014-2017 about 80 million sqm annually) and even if it stays at the current level, it will still take at least 28 years to reach the minimum acceptable security and to fully replace the old housing stock. In general, housing demand in Russia will not be Continue reading Russia’s mortgage boom

Ukraine’s housing market prospects: up or down?

Ukraine used to have an acute housing problem owing to the lack of effective social policy in the housing sector, aggravated by the low level of housing provision in Ukraine and its relatively high cost. During the past few years, the growth in the volume of housing construction, mainly in large cities and in their suburbs, has made significant adjustments to the market, though. Given the historically high need for housing and a number of existing conditions for growth in this market, there has been significant progress in the development of the housing sector.

Written by Sergii Zapototskyi – UVECON, EECFA Ukraine

Tetris Hall Residential Complex, Kiev. Source: http://tetrishall.com.ua

Housing market situation

Since 2015, the market has grown quite significantly for a number of reasons. First of all, due to the sharp devaluation of the national currency when the best option not to lose one’s money was to purchase a residential real estate. This process accelerated the crisis of the banking system. The lion’s share of the money that Ukrainians paid to developers was taken into banks where they were on deposits with fairly high interest rates. Another problem was providing housing for internal migrants, soldiers and their families, and the like. Customers tended to choose dwellings in new buildings where, when buying, the prices were more acceptable, and when selling, they could stick to their positions. Under such conditions, the housing market began to grow, including the primary one.

More details on Ukrainian housing market trends can be found in the EECFA Forecast Report Ukraine that can be purchased here.

In fact, this growth was driven primarily by the increase in large cities and their suburbs. In Kiev, the year 2013 registered about 130 newly constructed buildings, while in 2015 around 220 residential buildings were built. In 2016, already 290 such buildings were built, whereas at the beginning of 2018 there are more than 330. Within the Kiev region, the figures are somewhat smaller, though the trends are very close. Although five years ago Lviv lacked sufficient new residential buildings and there were only few construction sites, today there are approximately two hundred sites. The situation is similar in Odessa, where there are now almost one hundred and fifty new residential buildings. In Kharkov, there are approximately a hundred new buildings, almost 70 in Dnieper.

Thus, we can observe a growth in construction volumes, and consequently, a rise in the commissioning of housing in these regions. Kiev region remains a leader in housing put into use, accounting for 35% of all housing put into use in this region. This attracts investors due to lower housing prices and the fast transport access to the capital city Kiev. In 2017, the share in Kiev region is 18%, and in Kiev city, another 17%. In the capital city in 2017, only holding company Kyivmiskbud commissioned more than 300 thousand square meters of housing. In 2018, the company plans to put into use at least seven new facilities on around 450 thousand square meters.

The dynamics in housing put into use in Kiev region shows considerable input volumes when compared to other regions. Thus, over the past 10 years, in Kiev region (Kiev city + Kiev agglomeration), 28 million square meters of housing was put into use, Continue reading Ukraine’s housing market prospects: up or down?

Housing Production and Housing Price Relationship in Turkey

This paper is to elaborate on the paradoxical situation Turkey is facing: while building construction cost has risen by 22.8 per cent in nominal, 9.8 per cent in real prices, real housing prices have decreased by up to 7 percent.

Written by Prof. Dr. Ali Türel, Çankaya University, Department of City and Regional Planning, Ankara, Turkey

Residential project EX-115 (Golden Horn Sea View Apartments) under construction in Eyüp, Istanbul, Turkey. Source: http://www.extraproperty.com

In terms of total floor area, Turkey is the leading producer of housing in Europe. Annual starts are around 1 million dwelling units with about 150 million m2 of total gross floor areas, and completions are 750 thousand on average having between 110-120 million m2 of gross floor area. The number of newly formed households in recent years has been between 500 and 550 thousand, and when renewal of risky housing against natural disasters is added, annual housing need can be estimated as 650 to 700 thousand dwelling units. Housing starts between 2010 and 2016 were about twice, and housing completions about 50 per cent greater than the number of newly formed households. Syrian refugees may also have created additional housing demand, by as much as 500 thousand dwelling units since the beginning of the war in Syria.

High levels of housing production occur without much state intervention to the housing market, as most of the conventional housing policies of the welfare state have not been introduced in Turkey. The supply side is favoured more than demand side in state policies, as evidenced by incentives recently provided to builders. Some additional construction rights beyond that determined by Floor Area Ratio (FAR) for each parcel were granted to builders by a By-law in 2013. Such additions, most of which can be made at the basement of buildings, were limited by 30 per cent of FAR in 2017 due to reactions of professional organizations. Another incentive of the 2013 By-law is reducing rear garden distance that enables builders to produce housing on parcels that had insufficient depth according to the former By-law. Otherwise, housing markets operate under a highly competitive environment without much state intervention. Primary support to moderate-to-lower income people in housing acquisition is producing housing on publicly owned land by the Housing Development Administration (HDA), a Department attached to the Prime Ministry selling at affordable conditions. Continue reading Housing Production and Housing Price Relationship in Turkey

Housing market in Russia: Demand potential shaping future market dynamics

While in the EECFA Forecast Report Russia we estimate/forecast residential output, this article is looking at another angle of predicting housing market developments: demand potential in the Russian housing market (the number of households able to buy housing) as the main indicator of further market dynamics. Positive macroeconomic indicators in Russia currently are suggesting growth in real incomes and an increase in the population’s solvency, which in the near-term future is set to raise the number of households able to buy housing. This growth in demand potential will have a positive impact on residential output, yet, this is not something that will happen overnight: the Russian housing market is predicted to continue to slump for the time being. Nevertheless, the predicted growth in demand potential will play a major role in halting this drop, leading to an expansion in the housing market in 2019.

Written by Andrey Vakulenko – MACON Realty Group, EECFA Russia

‘North Valley’ Residential Complex in St. Petersburg – Source: http://www.severdol.ru

Having the largest share in total construction both in value and volume terms, the housing market is the engine of the whole Russian construction market. Any change – decline or growth – in the housing subsector may have a decisive effect on the Russian construction industry as a whole; as it was the case, in particular, during the crisis of the Russian economy in 2015-2016. In this period, the housing sector enjoyed an unprecedented level of state support (more details in the current/previous EECFA reports), which prevented the entire construction industry from collapsing.

The state of the housing market primarily depends on the ability of the population to purchase housing. Other market factors, such as the volume of supply in the market, the level of competition or the cost of housing are secondary. It is the ability of citizens to buy housing that ultimately determines the total volume of effective demand, which in turn regulates development activity and price trends in the local housing market. At the same time, the indicators of the population’s need for housing are also secondary in terms of the dynamics of the market situation; they are of an abstract nature and cannot be used to predict the situation in the market. The need for housing is a conditional market potential, which, without the ability to buy housing is never realized. The ability of the population to purchase housing is the real market potential, which – in most cases – is realized in transactions. The level of housing provision (need) affects only the nature of demand: investment purchase, purchase of a first home, improvement of housing conditions, among others. Continue reading Housing market in Russia: Demand potential shaping future market dynamics

New manufacturing is coming: Europe or China will be the new China?

JAPAN-SCIENCE-TECHNOLOGY-ROBOT ELDERLY

Robear is helping to revolutionize the manufacturing industry: do robears prefer China or Europe? (source: HuffingtonPost)

Adidas has announced that it will open its first all-robot factory in Germany, and many will follow in rich countries. Foxconn, the manufacturer of Apple products fired 60,000 employees and employed robots instead of them. It seems this is the beginning of the end.

The way we manufacture products is about to change dramatically in the next decade. There are two intertwined trends that have already started to revolutionize the industry: the digitisation of industry (or the “takeover of robots”) and that global economic growth is less and less energy and machinery-intensive (more and more value added comes from services). None of these are new; however, both of these trends are in front of a new era of growth. Developments in big data and machine learning are increasing the capabilities of robots and global value chains are becoming seamless. Economic growth is coming increasingly from services, as opposed to manufacturing. Moreover, growing concerns about climate change and the ongoing shift away from heavy machinery in state-of-the-art manufacturing are leading to the growing use of lighter materials instead of metals. Continue reading New manufacturing is coming: Europe or China will be the new China?

The coming wave of energy efficiency investments

The most energy efficient animal and the wave. Source: FatCatArt

This week’s post is concerned with energy efficiency investments in housing. We wanted to point out the importance of three factors: stable economic growth, further decrease of costs in renewables, and sufficient amount of fundings from the EU. All three factors seem to be fulfilled for the next couple of years, and we think a new wave of energy efficiency investments is likely in the future. Continue reading The coming wave of energy efficiency investments

The housing market’s James Bond: increasing immigration

Our current post is the next in line dealing with migration that has an impact on construction. Such issues will be discussed at the 80th EUROCONSTRUCT Conference.

In our previous post we concluded that lower potential economic growth and an increasing immigration are likely in Europe in the long run. An overall lower economic growth puts pressure on the construction industry as well, however, increasing immigration provides new opportunities for growth. In this post we will first elaborate on possible short-term effects and then we will present our expectation for the long-term. Continue reading The housing market’s James Bond: increasing immigration

Europe at crossroads: Economic decline and the possibilities of increased immigration

There is a series of current issues having an impact on construction that will be discussed at the 80th EUROCONSTRUCT Conference and first, we would like to address a very current issue in Europe: migration. There are many aspects of this phenomenon and it would be hard to present them all. Instead, we will address only one: how immigration can help slowing the ageing of the European Union’s population and thus increase growth prospects. Continue reading Europe at crossroads: Economic decline and the possibilities of increased immigration