Construction, real estate mortgage market development and economic growth in Turkey

Abstract

In line with the “economic sectors” definition of the Turkish Statistical Institute (2013), it is possible to define the overall real estate (RE) sector in terms of two main components, the construction industry and other RE business activities. The other RE business sector comprises establishments primarily engaged in renting or allowing the use of their own assets by others. This sector also includes establishments engaged in RE management, selling, buying, appraisal and mortgaging (Turkish Statistical Institute, 2013). Although the other RE business activities have been growing rapidly over the past decade, especially after the 2001 financial crisis, the construction industry has been the largest component of the RE sector. The construction industry has been considered one of the engines of economic growth in Turkey from the early 1960s onwards. Through the reorientation of economic policies starting with the 1980 stabilization program, the industry has been assigned a new role as part of the export oriented growth strategy as Turkish contractors have expanded their activities abroad, especially in the Middle East and North Africa (MENA) region (Sonmez, 1982). Turkey has been one of the region’s fastest developing RE markets as a result of the economic growth and favourable demographics in the 2000s (FESSUD, 2014). The recent improvements in the Turkish economy, especially the drop in the inflation rate, together with increasing domestic and foreign demand for residential units of RE have led the government to work on a raft of regulatory changes that would facilitate the legal environment for the establishment of a RE mortgage system. These efforts to develop the mortgage system resulted in an increase in the construction of new housing units, the development in mortgage products, and a significant decline in mortgage interest rates. The Turkish Parliament ratified the Housing Finance Law in March 2007 and long- term fixed rate borrowing became, for the first time ever, an available financing option for potential homeowners in Turkey (Erol and Tirtiroglu, 2011)...