Turkey Has Increased the Key Rate. What Does This Mean for Investors?

Turkey Has Increased the Key Rate. What Does This Mean for Investors?

At the end of November 2023 the Central Bank of Turkey raised the key rate again, as a result, it reached 40%. This decision elevated Turkey to third in the rating of countries with the highest key rates. Inflation was indicated as the culprit: according to the Central Bank’s forecasts, inflation will reach 60% by the end of 2023. However, price growth is in actual fact one of the factors enabling investors to make money from the resale of real estate, while affordable credit expands the range of potential buyers.  

Yulia Donskaya, expert on real estate investments in Istanbul and author of her own investment channel, explained the situation on the Turkish market specially for Housearch and gave some advice to investors on what to do at a period of high interest rates.

Yulia Donskaya
Expert on real estate in Istanbul and author of her own investment channel

The Market Freezes

The Central Bank of Turkey is continuing the policy of increasing the key rate, a policy that it started in June 2023. In November the bank raised the key rate for the sixth time in a row – to 40%. At present this is the third highest rate globally.

Local residents are the main players on the Turkish real estate market (96% of the total) and in 50% of cases buy property on credit. And this makes economic sense: given the depreciation in the value of the Turkish currency and the rate of inflation, effectively long-term loans turn negative. Now when the authorities have launched a serious anti-inflation drive and suspended the issue of loans to the public, they have rendered the key rate as inaccessible as possible. In the case of the real estate market, this means stagnation.

In actual fact, the first fall in demand occurred back in February 2023 after a major earthquake. The country’s presidential elections were the next sensitive moment: investors stopped in their tracks in expectation, as Recep Tayyip Erdoğan’s opponent had promised wide-ranging changes to domestic, international and migration policies. And then last but not least you had the Central Bank’s mission to curb inflation which was forecast to reach 60% by the end of 2023, whereas it had stood at 64.27% in 2022, thereby inflicting another blow on demand: all lending programmes were frozen, the market stood at a standstill, while property developers wept. 

…And this is a good opportunity!

However, there is no need to panic. The good news is that the stagnation has been created artificially by the Central Bank’s efforts and is aimed at a correction. And this is the perfect time for buyers. For today property developers are offering exclusive offers with the best purchase terms. This is an excellent opportunity for foreign investors that are not affected by the credit policy of the Central Bank of Turkey.

After the correction, loans will once again become available. This means that the Turkish population will buy again, while investors will make money from the resale of their properties. For the time being, they can leverage the amenability of property developers, obtain the best discounts and a convenient instalment payment plan.

When it comes to prices, they have not been forecast to fall in Istanbul. Here real estate prices will increase even after the correction, as this growth is attributable not only to hyperinflation in the country and the depreciation of the local currency. Istanbul was for a long time undervalued and is acquiring today the merited status of a megapolis “for the rich”. The prices of good investment properties in Istanbul start at USD 150,000 outside the city centre, averaging USD 200,000. And this is clearly not an exorbitant price for one of the most popular global transport hubs and centres of international politics. It is highly likely that growth rates will slow in future and will no longer be as anomalous as in 2022. However, investors can still expect to make a good profit.  

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Not the Time to Sell

There is one thing that you should definitely not do right now: sell any property that you already have in Turkey. At a time when the local population is insolvent, there is also no point in focusing on foreigners. Firstly, they represent a minority of potential local buyers (in total 8% on the Istanbul market and 4% for the country as a whole). In addition, recently the authorities have adopted a number of measures that have an adverse impact on foreigners: I am referring here to the increase in the minimum cost of housing that foreigners must pay to be eligible for an investment resident permit and the difficulties that they now face to obtain a tourist resident permit.

That is why the best solution for investors that have already invested in Turkish real estate is to simply sit out this period and monitor the credit programmes. It could well be that this December proves to be a good time to sell.

Cover photo: Istanbul. Levent Yücelman (Pixabay)

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