SEEKING STABILITY

urkey’s explosive construction growth has been a primary driver of the economy’s expansion over the past decadeand-a-half. That growth came to a grinding halt following last year’s currency crisis, which was followed by a surge in the relative cost of imported construction materials and sky-high interest rates.

The high interest rates—imposed by the central bank in a bid to counter runaway inflation— were a double whammy for the real estate and construction sector. It made their considerable foreign debt pile more expensive to service and severely reduced demand for housing as a result of higher mortgage costs for consumers.

Officially, the non-performing loan pile within the construction sector is around USD3 billion, but that number could be as high as USD10 billion. The government tried intervening to tackle the first issue of construction sector debt but has been bogged down by disagreements over the value of unfinished construction projects.

Stimulating housing demand has proven an easier task for the industry. Turkey’s central bank—in line with many of its global counterparts—began reducing interest rates at the end of July, a move that was followed by subsequent cuts as inflation continues to fall. State-run banks have also eased the market by offering below-market interest rates on mortgages to consumers. Finally, to boost demand among foreign

Tbuyers, the minimum real estate investment for citizenship was lowered from USD1 million to USD250,000.

The move to reduce the real estate investment component for citizenship ushered in a 69% increase in foreigner home purchases through the first half of 2019. Iraqis, Russians, Saudis, and Afghans were the largest foreign buyers of Turkish homes in 2019. The regulation change was especially helpful in reducing the oversupply of luxury homes built during the credit splurge only to be left unsold on the market when demand dried up.

While the buildup of the construction sector has caused some of the troubles currently faced by the economy, the growth of large contractors has enabled them to expand internationally. Turkey’s contracting industry is the second largest in the world—only behind China’s—and 44 Turkish firms are among the world’s 250-largest contractors. Turkish contractors expanded their Middle East market share by 10% during 2019, while their market share in Africa stabilized following a period of growth.

Part of Turkish contractors’ success abroad can be attributed to their domestic experience working on infrastructure megaprojects. Their growth in the future will hinge upon their ability to win infrastructure contracts in Africa, an area ripe for infrastructure development and where the Turkish government is strengthening its diplomatic ties. ✖