Do hot money movements drive Turkey s housing prices

Abstract

Purpose- The aim of this study is to investigate the existence and extent of the impact of "hot money" inflows on Turkey's real estate market, which causes the expansion of the monetary base in the markets. The use of data specific to the Turkish market, which has an emerging market economy and where housing production and sales are significant as an important macroeconomic indicator in this market, where the right to acquire housing has been stretched to foreigners in recent years and where excessive short-term capital flows are preferred, reveals the importance of the study. For this purpose, the "Housing Price Index" indicators created by the CBRT to monitor price changes in the housing market were used to measure the situation of housing markets in Turkey in recent years and to measure the possible effects of short-term international capital inflows on real estate prices. Methodology- As a method in the study, firstly, the changes in the monthly data between January 2010 and August 2022 belonging to both hot money and the Housing Price Index compared to the previous period were calculated, and then these data were seasonally adjusted. Then, the Dynamic Ordinary Least Squares (DOLS) method, which has the equation property of Cointegration Regression, was used to learn the existence and extent of the effect of hot money on real estate prices in the long term. Findings- In the analysis, it was found that hot money had a significant effect on housing prices at the level of 5% (p=0.012). The results of the analysis provide evidence that hot money is an important factor in determining housing prices in Turkey. Conclusion- The study found that due to the size of hot money and the fact that it is a short-term investment, it pulls real estate prices upwards and causes volatility. In addition, the results revealed that excessive liquidity caused by short-term international capital inflows drives the change in real estate prices by increasing it and that a long-term relationship between these two variables is evident. Keywords: Hot money, housing price, dynamic ordinary least squares JEL Codes: C32, C58, E44, G10,