Turkish home sales dive in December as mortgage demand slumps

Sales of housing in Turkey almost halved in December after the government tightened COVID-19 lockdown rules and demand for mortgages slumped due to higher interest rates.

Transactions fell by 48 percent from a year ago to 105,981 units, the Turkish Statistical Institute said on Thursday. The number of houses purchased via mortgage lending dropped by 71 percent last month to 14,631 units.

Turkey’s central bank has hiked interest rates sharply over the past four months – its benchmark rate stands at 17 percent compared with 8.25 percent in September – to reverse a slump in the lira’s value. That policy increased the cost of mortgages just when the government placed more restrictions on the population to stem the spread of COVID-19.

The average interest rate on lira-denominated mortgage loans has climbed to 18.6 percent annually from 15.2 percent at the end of October and 9 percent in June, according to central bank data. Inflation in Turkey stood at 14.6 percent last month.

The housing market was a key driver of economic growth in Turkey early in the last decade. But an attempted military coup in 2016 and a currency crisis two years later hit the industry hard. Many construction firms applied for bankruptcy protection and others pared back their operations while attempting to offload a burgeoining stock of new homes.

The government engineered a borrowing boom, led by state-run banks, last year to stimulate economic activity and help offset the impact of the first wave of the coronavirus. The central bank backed those efforts by keeping interest rates at below annual inflation, a policy it was forced to abandon in the autumn as the lira slumped.

Sales of new homes dropped by an annual 51 percent to 36,898 units in December. Sales of existing homes declined by 45 percent to 69,083 units.

Housing sales during the whole of 2020 rose by 11 percent to 1,499,316, the institute said. That was the highest level since at least 2013.