A few more mortgages

A few weeks back, I made the comparison between the factors driving real estate price growth in Budapest and Istanbul. Following up with this over the next couple of blogs, I would like to offer a few thoughts on why prices in Istanbul may be set to move considerably higher in the future. Firstly let’s try and predict property purchase credit.

Currently, mortgages are a growing part of the housing situation in Istanbul, yet home buyers are left with few options. The banks generally offer mortgage rates that are hovering around ten percent yearly and in a lot of cases more. Obviously, this affects purchasing power greatly and means that if somebody buys a property, they would be well-advised to put in quite a bit of cash and also to keep the loan period as short as possible. The average loan term, I would guess is 7-8 years and often 50 percent or more is put down in cash. This makes the monthly payments bearable but also restricts the property market to the relatively well off. Most people now are very aware of the Western property crisis causes; the availability of cheap financing options, very low deposits and slack mortgage customer due diligence. When consumers were able to get loans at two, three and four percent with little down-payment, their purchasing power went through the roof, and hence property prices did, too…. for a while!

With this kind of (lack of) credit back story in Istanbul you’d be forgiven for predicting a property market stagnation or drop. But Western World economic calculations don’t work in Turkey, as we’ve seen good growth with respectable property inflation over the past 5 years. At the same time the Western world skidded off the rails bloated with a sack load of credit that pinned up the economy.

Credit Western stylee

Turkey, on the other hand has powered on without the need of artificial life support. There’s a lot more to the Turkish economy than a few cheap loans!

Now that Turkey’s Fitch rating has come in at investable grade (Financial Times vid), there is expectation that this will make borrowing cheaper and more widespread. Maybe this won’t happen universally in Turkey as cash down-payments aren’t set to drop radically but that may not be a bad thing as the Western world property implosion has taught us.
However, even if it removes two percent of the costs, bringing it down into the 8 percent vicinity, one would expect that this will have a knock on effect for housing prices. It’s unlikely that we will see low single digits that prevailed in the western world, yet it could be enough so that the Turkish buyer can lengthen the terms of the loans, buy a property and make monthly payments that are more or less similar to current rental prices. In this case, of course, many people who have the ability, will opt to buy over rent as a good chunk of the money will stay with them in the form of equity.
This might not affect all areas equally, especially in the short-term. Some high-end properties like a Bosphorous view in Cihangir, might not be as affected as a budget new build on the Istanbul outskirts as the Cihangir property is probably less reliant on loans for the purchase. However and needless to say, the youthful population and the growing economy will be additional tailwinds for home prices and this will eventually have a positive knock on effect throughout the whole market.

My view, and for a good few years yet, is that it would be a seriously risky move to short Istanbul property prices.

www.lilimont-istanbul-realestate.com

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