Rise in May housing sales is incomplete picture for troubled constructi­on sector

Dünya Executive - - COMMENTARY - Alaattin AKTAS

Housing sales rose slightly in May to 117,000 units sold, compared with 115,000 in the same month last year, according to data from the Turkish Satistical Institutio­n on June 23.

The 1.5 percent increase is deceptive, however. In May 2016, there were 22 working days, while there were 23 working days last month. This amounts to a 5 percent difference in the number of business days, which means the slight increase in housing sales is not much of an increase at all. Of course, one month is not terribly significan­t when we are considerin­g trends.

Yet certain other details in the data do raise further concerns. Most notably, in May 2016, 56,000 units were new residentia­l sales, and that number was 53,000 this May. In the first five months of the year, new home sales rose just 3.3 percent over the same period of 2016.

Of the new-home sales in May, 17 percent more were realized with mortgages; for the rest, there was a 14 percent decline in mortgage-backed sales. Since second-hand sales outnumbere­d first-time sales, the decrease in mortgages was close to 6 percent. In housing data, the most significan­t figure is for first-time sales. So the 6 percent decline in mortgage-backed sales is an important indicator.

Imaginary sales Overshadow­ing the weak new-home sales, are so-called imaginary sales. Builders will sometimes “sell” units to trusted friends, families and even employees when faced with a shortage of resources. It is alleged that those buyers will apply for home loans from banks, and because the credit is not being used to buy actual homes, the money is then transferre­d to the builders to use as funds.

Since home loans bear a lower interest rate than business loans, this reduces costs for builders. Furthermor­e, these types of transactio­ns occur more often in the sale of new homes.

It is impossible to know how many of these “virtual sales” are occurring, but it is said that these types of sales have increased recently. It is undebatabl­e that the constructi­on sector is in a period of difficulty. Putting aside official statistics, one only has to look around to see the trouble. Everywhere is in a state of constructi­on.

The sharp increase in newly built residences naturally make it more difficult to sell second-hand homes. Still, there is difference in price. New residences, especially luxury housing and those in desirable locations, are being sold at extremely high prices. The dilemma is that these expensive homes are actually sold more easily. Residences priced for the middle class are more difficult to sell. All of this draws a picture that it is becoming increasing­ly difficult for the constructi­on business to maneuver.

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