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Construction fuels engine of Turkey’s high growth in 2010
This was what happened in 2009, when the Turkish economy suffered a 4.7 percent contraction. The construction sector shrank 16.3 percent over that year, making the situation really dire, given that all sectors except construction and social services grew during the final quarter of 2009, when the construction sector continued its discouraging performance with a 6.6 percent decrease over the same months of 2008. The above theory was once again proven in the first quarter of 2010, when the Turkish economy expanded at a breakneck speed of 11.7 percent over the same period in the previous year, while construction posted an 8 percent increase.
The real boom in construction was recorded in the third quarter. The sector enjoyed a greater jump than other major sectors for the mentioned period, realizing an increase of 24.6 percent. However, a large basis effect, given that it had suffered a sharp decline of 18.2 percent in the same period of the previous year, should be kept in mind while assessing the real value of this jump.
Mortgage rates down
The retreat in the interest rates’ contribution to mortgages needs a particular mention while explaining the driving factors behind the sector’s success in 2010. The central bank’s monetary policies and the reinstitution of confidence in the Turkish economy as one of the most resilient emerging markets jointly pulled the overall interest rates down. Early in the year, a daily average of 1,000 to 1,200 home loans was being extended to prospective homeowners by banks and these numbers have risen by 50 percent.
As of November, mortgages extended by financial institutions had posted a tremendous increase of 24.2 percent, reaching TL 52.85 billion since the beginning of the year. In addition, non-performing loans also decreased to TL 790 million from TL 869 million at the end of 2009.
The average loan per person increased by TL 5,000, to TL 70,000 while monthly interest rates fell as low as 0.79 - 0.85 percent on average, from levels slightly above 1 percent at the beginning of the year. Moreover, the average term length of loans enjoyed an increase to nine years. The volume of mortgages, having enjoyed a growth rate of 30 percent and reaching TL 55.2 billion as of Dec. 3, is estimated to reach TL 57 billion by the end of this year. It is expected to reach TL 68 billion in 2011.
The rise in the mortgage loans, however, may not be representative of what is really happening in the sector. For instance, despite an upsurge of 26 percent in mortgages during the January-October period, home sales were down by 25.2 percent in the same period. This was due to an increasing tendency to refinance.
This shouldn’t mean, however, that the situation in construction was misleading. Housing is only one part of the multifaceted sector, with large projects spanning from public and private sector investments on new buildings to road and bridge construction. Turkey’s potential regarding construction was frequently praised by major foreign players. For instance, Martin Langen, founding partner of B+L Marktdaten GmbH said a couple of prominent construction firms from Europe had serious intentions to enter the Turkish housing and real estate markets in the next five years.
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