Istanbul Olcay Atik had been looking forward to returning to the university. The 22-year-old student at Istanbul’s Bogazici University had to study for three semesters from his parents’ house in the Turkish province because of the pandemic. Now he could come back to the exciting metropolis on the Bosporus – if he could afford an apartment.
Last year Atik paid around 700 Turkish lira for a room in a shared apartment near the campus. “Now I’m supposed to pay 1,800 lira,” he complains.
According to a ranking by the OECD, rents in the Turkish metropolis of Istanbul have recently increased the most in the world: by 157 percent within five years. According to a study by the private Turkish Bahcesehir University, the numbers are even more drastic. The study shows that rents have risen by up to 290 percent near the universities.
In a survey, the Istanbul city administration found that the average rental price for an apartment has risen from 1541 lira (145 euros) to 2561 lira (240 euros) since the pandemic began, an increase of 66 percent within 18 months.
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Sevval Sener from the Deep Poverty Network, which investigates the concerns of poor city dwellers in Turkey, explains: “People who work in precarious jobs have lost a large part of their daily earnings as a result of the pandemic. Those who couldn’t pay the rent were driven away by the landlords. “
This not only threatens a price bubble on the Turkish real estate market. The situation also harbors potential for political conflict. The Istanbul “Center for Urban Justice” has calculated that just two percent of the living space in the metropolis is affordable for low-wage earners. The government must act – but it doesn’t yet.
Corona returnees are causing price pressure
Real estate agent Asuman Aykut knows that prices are rising significantly, especially in downtown Istanbul. “Many students and employees with the option of working from home have spent a large part of the past year and a half outside the big cities.” After the corona-related lockdowns, people are now streaming back to the cities. That ensures great demand – and high rents.
According to real estate agent Keller Williams, anyone who wants to move into a two-room apartment in the downtown district of Besiktas must now pay at least 9,000 lira monthly rent. Converted according to the current exchange rate, that’s around 880 euros. The net minimum wage in the country is 2,824 lira, around 260 euros.
Aykut names several reasons for the rapid price increase. In addition to the end of the pandemic, this includes, for example, regulation for the conversion of old residential buildings according to earthquake-proof standards. The program called “Kentsel dönüsüm” (“urban development”) forces residents of old buildings to temporarily move into another apartment during the renovation phase. “As a result, there is constant demand for short-term rental contracts, and these are usually more expensive than long-term contracts,” explains Aykut.
Then there are the high prices for building materials. Reinforcing steel in bars has risen by up to 70 percent in US dollars within a year. At the same time, the lira has lost almost half its value against the dollar. As a result, reinforcing steel currently costs more than double in Turkey compared to the previous year.
Bazaar mentality in the Istanbul housing market
But not only builders of new residential buildings demand significantly more money, but also owners of existing properties. There seem to be no limits to the price spiral. It’s almost like going to the bazaar.
Aykut explains that in February 2020, shortly before the start of the corona lockdowns, she sold a 100 square meter apartment in the tourist and trendy district of Galata for 2.1 million lira, at that time that was the equivalent of around 350,000 euros. “In the same building, an apartment twice as large has now been sold for ten million lira.” That is currently around 900,000 euros.
Average interest rates in Turkey have risen from around seven percent in the summer of 2020 to almost three times as much. To make up for this, many home financiers have increased their rents dramatically. In other words: contrary to economic theory, the rise in interest rates in Turkey has caused rent inflation instead of dampening price pressure.
Rich and poor foreigners increase the price pressure
The purchase prices are also rising: according to the “Global Property Guide” in the first quarter of this year by more than 30 percent.
According to the national statistics institute, foreigners bought 37,479 properties in Turkey from January to September inclusive – 43.2 percent more than in the same period last year. The weak lira makes the purchase all the more attractive. The largest groups of buyers come from Iran, Iraq, Russia and Afghanistan.
Even in the low price segment, a group of foreigners is causing lasting price pressure: refugees. Officially, around four million people seeking protection live in Turkey, more than 97 percent of them outside of refugee homes in normal apartments. There are also hundreds of thousands of unregistered migrants.
That is more than five percent of the country’s existing population – and thus a large group of buyers in the Turkish real estate market. According to a survey by the Heinrich Böll Foundation, 65 percent of those questioned in Turkey regard refugees as an “economic burden”.
The government under Head of State Erdogan claims to have recognized the problem. But so far there have been nothing more than warning words. Real estate agent Aykut says she is not aware of any rent controls.
The first reactions from Ankara are rather pious wishes – in the truest sense of the word. The government directed imams in the country to warn sellers in their sermons about inflation in commodity prices. Believers should “avoid false marketing and not act opportunistically,” it said in a Friday sermon.
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