Home prices in Turkey have seen a staggering uptick, fueled by a combination of factors, including a rush for real estate among the well-to-do to protect their savings from inflation, which has hit an annual rate of nearly 50%.

The demand on the housing market has defied steep price increases, running 10 percentage points above the inflation rate, pushing the prices even higher. The supply, meanwhile, has shrunk amid a slowdown in new investments — the result of whopping cost increases in the construction sector.

Heeding pressure from President Recep Tayyip Erdogan, Turkey’s Central Bank cut its policy rate by 500 basis points in the last four months of 2021 despite surging inflation and at the expense of fueling the slump of the Turkish lira. The cuts brought the bank’s policy rate to 14% in December as annual consumer inflation climbed to 36% and producer inflation hit nearly 80% at the year-end.

The controversial policy stoked a flight to hard currency and gold as real yields on the lira plunged deeply into negative territory. Indeed, those who put their money in hard currency and gold were able to not only offset the impact of inflation but also make real profits on an annual basis. According to January data by the Turkish Statistical Institute (TUIK), the US dollar yielded the highest real profit of 23% over a year, followed by gold (ingot) with 19.7% and the euro with 14.5%, while those who counted on deposit interests (gross) and government bonds made losses of 22.75% and 32.7%, respectively, in real terms.

It is to this backdrop that many have turned to purchasing real estate to shield their savings against inflation. Home sales had already risen in 2020 and lost little momentum last year even as prices rose about 60%.


Written by Mustafa Sönmez