Turkey's real estate market is currently in what many analysts refer to as the ‘Buy Zone’ – a period where property prices are more favourable for investors. This phase is intricately linked to the country's inflation dynamics and the government's monetary policies. Understanding this relationship is crucial for investors looking to capitalise on opportunities in the Turkish real estate market.
In this article, we explore whether the market has reached its lowest point and how much time remains for investors to take advantage of the ‘Buy Zone’ in Turkey.
2015 – May 2023: Turkish Central Bank Policies and Housing Prices
Turkish housing prices had been steadily increasing since 2015, before surging to record highs in 2021. This rapid growth peaked in 2022, with house prices skyrocketing by 168% in a year, followed by another significant rise of 76% in 2023. In contrast, housing prices in Europe and the United States declined in late 2022 as Central Banks raised interest rates to combat high inflation, leading to higher mortgage rates.
In Turkey, however, the Central Bank of Turkey reduced its benchmark rate in August 2022, even as inflation neared 85% by October and stayed above 50% for most of the year. The Erdogan government's pursuit of low interest rates during the Covid period and until May 2023 led to huge GDP growth, including a dramatic rise in real estate prices.
Foreign investors took significant notice, purchasing over 400,000 properties in Turkey between 2013 and 2023. This trend peaked in 2022, with more than 67,000 units bought by foreign investors, driving annual investment in Turkish real estate by foreigners to over $7 billion.
May 2023: New Monetary Policies introduced
After the May 2023 elections, President Recep Tayyip Erdogan introduced new orthodox economic policies with a stricter approach to monetary and fiscal management. The Central Bank of Turkey responded by significantly increasing interest rates, quadrupling borrowing costs, and reducing market interventions.
The benchmark rate increased from 8.5% in June 2023 to 50% by March 2024 to combat inflation and stabilise the currency. By February 2024, inflation had decreased to 67%, down from over 100% in 2023. The Central Bank committed to maintaining strict policies until inflation reaches target levels.
Resulting Turkish real estate market slowdown
Until 2022, low interest rates provided by Turkish banks, coupled with continuously rising property prices, made real estate a highly attractive investment for both Turkish nationals and foreign investors. This environment encouraged many to consider real estate as a reliable way to safeguard their finances and secure their future through property ownership.
Following the May 2023 Elections and significant shift in monetary and fiscal policies, Turkish banks began offering higher interest rates, as high as 50%, making savings accounts more appealing to nationals seeking higher returns on their deposits. This shift in financial behaviour led to a slowdown in the local real estate market, as funds were redirected from property investments to interest-bearing Turkish Lira deposits.
In 2023, a total of 1,225,926 properties were sold in Turkey, representing a 17.5% decrease when compared to the previous year. Istanbul led the market with 198,739 sales, followed by Ankara with 114,432 sales, and Izmir with 65,465 sales. Statistics showed that foreigners purchased 35,005 (3%) of total properties sold in 2023.
High interest rates are an effective tool for combating inflation because they reduce overall demand across the economy. Higher interest rates increase the cost of borrowing, making loans and credit more expensive for consumers and businesses. As a result, people are less inclined to spend money, leading to decreased liquidity in the market for real estate, goods, and services.
Shift to investing in Turkish Lira-denominated assets
With a national income of $1.34 trillion, Turkey ranks as the world's 17th largest economy. In 2023, Turkey attracted $13 billion in Foreign Direct Investment. 2024 data suggests that will increase to $15 billion with targets of $70 billion in investments from 2024 to 2028.
A key strategy of Turkey's Disinflation Program was raising interest rates to boost the value of Turkish Lira assets. This move encouraged investments in Lira-denominated assets such as bonds, stocks, and bank deposits. As a result, between June 2023 and May 2024, Turkey saw an influx of $15 billion in Lira investments.
Nick Eisinger, co-head of Emerging Markets Active Fixed Income at Vanguard, which has more than $7 trillion in total assets under their management, said: "Investors are getting back in quite aggressively now – the numbers are really strong. There's been a lot of inflows.”
Investors converting USD to Turkish Lira to earn interest
In 2024, Turkish banks are offering exceptionally high deposit interest rates. As of August 2024, the average interest rate on three-month Turkish Lira deposits is above 50%, with some banks offering rates as high as 51.32%. This is a significant increase from previous years, reflecting the Central Bank's efforts to tighten liquidity in the market and attract deposits in Lira as part of a broader strategy to stabilise the currency and control inflation.
High interest rates in Turkey offer a lucrative opportunity for investors seeking substantial returns on savings. From January 1 to August 1, 2024, the Turkish Lira has shown relative stability, depreciating only 12.7% against the Dollar. Despite this depreciation, investors who exchanged USD for Turkish Lira and deposited into banks returning 50% interest are seeing significant gains in USD terms.
Case study: 1 million USD deposited into Turkish bank account
6 month investment: If an investor changed 1 million USD into Turkish Lira on January 1 and deposited it into a Turkish bank account earning 50% interest, by August 1, 2024, they would have approximately $1,124,700 USD. This represents a return of 12.48% in USD terms.
12 month investment: If an investor changed 1 million USD into Turkish Lira on January 1 and deposited it into a Turkish bank account earning 50% interest, by January 1, 2025, they would have approximately $1,311,900 USD. This represents a return of 31.19% in USD terms.
*These case studies account for both the interest earned and the depreciation of the Lira against the USD. With final return on investment in USD terms*
Foreign Direct Investment and Turkey’s foreign exchange reserves
Between 2019 and 2023, Turkey's foreign exchange reserves experienced fluctuations, starting at $81 billion in 2019 and decreasing to $49 billion by late 2020 due to efforts to stabilise the Lira. The reserves then recovered, reaching $72 billion by the end of 2021 and further climbing to $79 billion in 2022.
Foreign Direct Investment (FDI) in 2024 has had a positive impact on Turkey's foreign exchange reserves. The inflow of FDI, which is expected to reach up to $15 billion in 2024, has contributed to the stabilisation and growth of these reserves. This increase in FDI, spurred by Turkey's removal from the Financial Action Task Force 'grey list' and improvements in its credit rating, has helped to bolster the country's economic stability.
As foreign investors bring in capital, this inflow of foreign currency supports the Central Bank's reserves, helping to mitigate some of the pressures from external debt repayments and other economic challenges. Turkey's foreign exchange reserves have shown resilience, reaching approximately $92.5 billion by August 2024.
July 2024: Turkey’s Annual Inflation Rate starts to slow
For the second consecutive month, Turkey's annual inflation rate dropped significantly to 61.7% in July 2024, down from 71.6% in June 2024. Finance Minister Mehmet Simsek announced the decline, highlighting positive outcomes from the government's Disinflation Program, saying: “Annual inflation is falling. We continue to get positive results in all areas of our program. The decrease in inflation will be felt more in the coming period.”
The Central Bank of Turkey kept borrowing costs at 50% for the fourth consecutive month in July. Economist Nicholas Farr noted that the Central Bank's efforts are yielding results and remain on track.
Turkey's annual inflation rate had peaked at 85% in October 2022, the highest in a decade, before falling and rising again in 2023 to over 100%. The Central Bank forecasts inflation to drop to 43.5% by the end of 2024, and further to 25.5% in 2025, with the first interest rate cut expected at the end of 2024 or in 2025.
Inflation slowing – are interest rate cuts coming?
The high interest rate policy is expected to persist until the end of 2024, in line with economic targets. After this period, the introduction of lower interest rates and various economic stimuli are anticipated to strengthen the economy, bring the cost of borrowing down and see liquidity return to the market.
Cameron Deggin, CEO of Property Turkey Group, said: “The current monetary policies are achieving their targets with inflation decreasing due to interest rate hikes. This aligns with our previous predictions that liquidity will return to the markets by the first quarter of 2025, reopening the domestic market and triggering a further influx investment in Turkey.”
Deggin continued: "The Turkish government is likely to begin cutting interest rates once a persistent pattern of declining inflation is observed month after month. With two consecutive months of decreasing inflation now behind us, it is likely that if this trend continues for another one or two months, interest rate cuts will follow. I predict this will occur close to the end of the year."
How will this affect the Turkish real estate market?
When the Turkish government begins to lower interest rates, a shift in investor financial behaviour is likely to occur. Investors may start withdrawing funds from bonds, stocks and shares, and deposit accounts. This move will stem from concerns that the Turkish Lira might weaken slightly, as high interest rates are instrumental in maintaining the Lira's strength by encouraging the sale of Dollars in exchange for Lira.
As interest rates decrease, the demand for Turkish Lira is set to weaken. While a sharp depreciation is not anticipated, a gradual weakening of the Lira is expected. This change will prompt investors to reallocate their funds, which have largely been placed outside the real estate market.
Many, particularly foreign investors, may choose to keep their capital in Turkey to avoid potential taxation in their home countries on the gains they have accumulated. As a result, a significant portion of this capital is likely to flow into traditional investment avenues, such as the real estate market, creating new opportunities for investment.
The last few months of the ‘Buy Zone’
As inflation decreases and anticipated interest rate cuts approach, it is expected that more investors will withdraw funds from Turkish banks to re-enter the real estate market, leading to an upward trend in property prices. This will mark the end of the current ‘Buy Zone’ period.
"Over the next 3-4 months, the prime 'Buy Zone' in Turkey is expected to conclude as inflation decreases, buyers re-enter the market, and property prices begin to rise. This is a pivotal moment for investors considering the Turkish real estate market, with prices currently at their lowest. Act now to capitalise on this opportunity before the next growth cycle starts. Contact us to achieve maximum returns on your investment." Cameron Deggin
2025 – 2030: Reasons to Invest in Turkey
Medium-Term Program – Turkey's Medium-Term Program outlines a strategic economic plan focused on growth, employment, and stability. Key objectives include stabilising prices, implementing tax reforms, and enhancing government efficiency, with the goal of reaching a national income of $1.5 trillion by 2028. The IMF and OECD project that Turkey will become the 9th largest economy by 2030 and the 5th by 2060.
Employment and Exports – Turkey's focus on employment and production has led to a significant increase in exports, rising from $169 billion in 2020 to $265 billion in 2023.
Young Population – Turkey's youthful population, with a median age of around 31, is a key driver of its economic potential. This young workforce fuels productivity, innovation, and consumer demand, positioning Turkey for sustained economic growth.
Strategic Regional Hub – Turkey's strategic location at the crossroads of Europe, Asia, and the Middle East makes it a vital regional hub for trade and investment. Its connectivity to emerging markets enhances its role in global supply chains, providing a gateway to diverse markets.
Infrastructure Development – Turkey's commitment to infrastructure development is evident in projects like Istanbul Airport, the Marmaray Tunnel, and high-speed rail networks.
Innovation and Entrepreneurship – Turkey's dynamic entrepreneurial ecosystem is a key contributor to its economic vibrancy. A growing start-up culture and focus on innovation make Turkey an attractive destination for investment in emerging technologies and industries.
2025 – 2030: New wave of investment in Turkish real estate
Best investment opportunities in Istanbul
Following government regulations on Airbnb, the number of short-term rental apartments in Istanbul dropped from 32,000 to 21,000. As the most visited city in the world in 2023, Istanbul's demand for short-term rentals is surging. Properties approved for these rentals are expected to experience higher occupancy rates and increased demand.
According to Statista Market Insights, revenue from short-term rentals in Istanbul grew from $0.64 billion in 2017 to $1.02 billion in 2023, with forecasts predicting $1.10 billion in 2024 and $1.33 billion by 2028. This trend suggests that investors with short-term rental properties will see greater returns as supply decreases and tourism continues to rise.
Sense Levent: Designer Residences in Istanbul
Explore affordable luxury at Sense Levent, Istanbul's top designer residences. Developed in partnership with Designer Turkey and architect Saffet Kaya, these apartments offer great growth potential and are Airbnb-approved. Located in Kagithane, they are also ideal for Turkish Citizenship.
Sense Sisli: Affordable City Centre Istanbul Apartments
Discover top investment opportunities with Sense Sisli apartments in the lively Bomonti area. Just a short walk from Nisantasi, Cevahir Mall, and Sisli Metro, these apartments offer up to 10% annual Airbnb rental potential and qualify for Turkish Citizenship by Investment.
As investors begin moving their funds out of Turkish banks and back into the real estate market, many will choose to keep their capital within Turkey, with a number opting for a long-term, strategic approach by investing in luxury family homes.
Bodrum, one of Turkey's most sought-after tourist destinations, attracts over 1.5 million international visitors annually, reinforcing its status as a prime location for affluent tourists and expats. This robust tourism demand guarantees high rental yields and offers significant potential for property value appreciation.
U House: Luxury Villa in Gumusluk Bodrum
A once-in-a-lifetime opportunity to own a truly unique property. This exquisite home, designed in collaboration with Saffet Kaya, seamlessly blends authentic and contemporary architecture. The design gracefully wraps around a serene swimming pool and lush garden, creating a harmonious sanctuary where sensuality and tranquillity converge.
This stunning Villa, located above Gumusluk Bay with sweeping views of the surrounding Greek Islands, boasts a captivating panoramic vista. Crafted with ground-breaking architecture and a distinctive glass design, this masterpiece is a result of an exclusive collaboration with Saffet Kaya.
"I anticipate the next significant wave in Turkey's real estate market to begin around mid-to-late 2025, with early signs of increased demand emerging as soon as the first quarter of 2025. I expect the next real estate peak to occur around 2027-2028, with an average 50% upside in USD terms, and even higher gains in certain segments of Central Istanbul, particularly in affordable central districts."
Bodrum 
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