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Spotlight: Turkey’s housing sector feels repercussions of currency turmoil

by Burak Akinci

ANKARA, Sept. 25 (Xinhua) — Turkey’s housing sector, which has been one of the pillars of the country’s economy, is now feeling the repercussions of the recent currency turmoil.

The construction frenzy in big cities such as Istanbul, Ankara and Izmir once accounted for 20 percent of the country’s GDP growth in recent years, with an employment of around 2 million people.

However, many projects, modest or luxurious, have been stalled or cancelled recently due to cash flow problems. Some well-known firms have filed for bankruptcy, fueling fears of a chain reaction, local media reported, citing executives in the sector.

Turkey’s economy grew impressively thanks to a boom in the housing sector, including the construction of a number of shopping malls, bridges, roads and skyscrapers.

Turkey’s new airport, which is expected to be the world’s biggest airport upon completion, will be inaugurated on the Republic Day on Oct. 29, but other big projects which have not started yet will be cancelled until further notice in line with drastic spending cuts.

As Turkish currency lira has lost 40 percent of its value against the U.S. dollar so far this year, property developers who funded their buildings with cheap loans in foreign currencies are struck particularly hard.

The currency slump was triggered by a spat with the U.S. government over Turkey’s ongoing imprisonment of the American pastor, Andrew Brunson, who is accused of involvement in a failed Turkish coup attempt in 2016.

Turkey also relies heavily on imports in terms of construction materials. It is the world’s ninth largest importer of steel, but the lira’s depreciation was a serious blow to contractors who saw their profit margin shrinking considerably.

“Some projects have been shelved because of the currency volatility. The fact that our budget is calculated based on U.S. dollars has made things very difficult,” Zafer Ozerson, a stone contractor from Ankara, told Xinhua.

Ozerson’s company provides raw materials such as natural stone, granite and marble to big companies involved in major building projects.

“As big construction companies are stalling their projects, we also have to freeze inevitably our cooperation with them,” Ozerson explained, saying he was pessimistic about the future in the short and medium term.

“The depreciation of the lira will continue despite government’s plan to tackle inflation and unemployment which have gone up to two-digit figures,” Ozerson said.

“There’s no liquidity,” he added.

According to the Turkish Building Contractors Confederation, between 1995 and 2005, an average of 500,000 housing units were built every year. In 2017, the boom left hundreds of thousands of units unsold despite government and corporate incentives.

Experts estimated that there are up to 2 million unsold housing units across the country.

Tahir Tellioglu, chairman of the Turkish Building Contractors Confederation, said that because of the currency turmoil, “70 percent of all private construction work has stopped or slowed down,” pointing to a bleak future for the industry.

Property sales with banking loans have plummeted a staggering 57 percent in Istanbul in August from July, because banks had to increase their interest rates in line with a 6.25-percent hike of the policy rate, announced recently by the Central Bank.

But there is also good news: property sales to foreign nationals have increased remarkably to reach 6 billion U.S. dollars so far in 2018, from 4 billion dollars for the whole year of 2017, announced Altan Elmas, chairman of Konutder, an association of major contractors.

“We expect this figure to reach 10 billion U.S. dollars in 2019,” Elmas told reporters.

On the other hand, the situation regarding hundreds of shopping malls which have sprung up like mushrooms in Turkish cities is most alarming.

Turkish President Recep Tayyip Erdogan announced recently a ban on use of foreign currency in property rentals and sales, giving companies a 30-day deadline to convert their foreign-currency-based deals into lira-based ones.

But owners and managers of the 402 shopping centers of Turkey, mostly in Istanbul, have a total 15 billion dollars in loans used to finance their venues. They will have to repay the debt in U.S. dollars or euros.

Until the end of 2020, 44 new shopping centers will be built around Turkey, according to a report by JLL Turkey, a real estate consultancy firm.

“There are chaos here. We were told by lawyers that there will be legal complications,” said Yilmaz, a tenant of the Ankara Armada shopping mall, who refused to give his surname.

“The trade has already declined because of the economic situation caused by the currency crisis. Our rents soared in recent months… we may be forced to close our business and move to somewhere else,” he added.

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