Turkey’s middle class priced out of home ownership

A government home loan facility has attracted little attention in Turkey, as skyrocketing property prices and dwindling purchasing power make homeownership a distant dream, even for middle-class professionals.

The relatively cheap loans, announced by President Recep Tayyip Erdogan on May 9, came amid unprecedented turbulence in the real estate market. House prices have doubled over a year, outpacing overall consumer inflation, which hit 70% in April, fueled mainly by the sharp depreciation of the Turkish lira since last year.

Alper Ozkok, a doctor and faculty member at a university hospital in Ankara, is among millions who feel pressured for decent housing even after the loan facility. “As a doctor for 12 years, I can’t buy a house in Ankara now,” he told Al-Monitor.

Ozkok and his wife, also healthcare workers, were thinking of buying an apartment when their landlord asked them to move out before the loan package was rolled out. “We decided that we’d rather buy a house than pay 5,000 lira [$313] for rent,” said the 35-year-old, noting that he and his wife together bring in 25,000 lire ($1,570) a month.

“We had been watching prices rise day by day and with the announcement of the package, the prices for creditworthy houses rose even further,” Ozkok said, referring to the immediate increase in list prices following Erdogan’s announcement. “Apartment prices start at around 2.5 million lire [$156,500] in and around the neighborhood we currently live in. A loan of 2 million lire would mean monthly payments of over 28,000 lire. That’s more than we deserve.”

House prices in Turkey rose 96.4% year-on-year in February, central bank data showed, with the rate for new construction exceeding 102%. In Istanbul, the country’s most populous and most expensive city, property prices rose 104% over the same period, reaching more than 13,800 lire ($864) per square meter. The price hike has been fueled by a supply tightening amid rising construction costs that has stalled home investment coupled with robust demand fueled by wealthy buyers investing in property to protect their savings from inflation and the falling lira.

Similarly, rental prices rose 84.2% year over year in February, according to data from a respected offer-based think tank. Growth exceeded 100% in Istanbul, Ankara and the third largest city Izmir. In Istanbul, the average rent of a three-bedroom apartment reached 5,000 lira, surpassing the minimum wage of 4,250 lira, the monthly salary of nearly half of the country’s wage earners.

As part of Erdogan’s package, public banks are offering 10-year loans with a monthly interest rate of 0.99% for up to 2 million lire to first-time homebuyers buying new houses. Home buyers up to 2 million lira who meet at least half of the purchase price by exchanging hard currency or gold deposits are also eligible for 10-year loans with a monthly interest rate of 0.89%.

The public Ziraat Bank’s online calculation tool puts the monthly payments for a 10-year 2 million lira loan in the first category at 28,600 liras and for a 1 million lira loan at 14,250 liras. Such sums are unaffordable for most social strata in Turkey, where the minimum wage of 4,250 lira or slightly higher wages has become the predominant salary in the private sector, while public sector salaries average less than 7,000 lira.

Derya Kurt, a lawyer in Istanbul, said she and her husband, who also works in the private sector, had been saving for a home and were excited when the loan facility was announced. “But our joy was short-lived. We lack the income to use the package,” she said.

The economic crisis has discouraged people from hiring lawyers, which is directly affecting their income, Kurt complained, adding that she and her husband were making around 30,000 lire a month at best. A suitable apartment in her Kucukcekmece district, about 30 kilometers from central Istanbul, would cost at least 1.75 million lire, she said. “And the monthly loan repayment equals our total income. As two working college graduates, we can’t buy a house today – we can only dream of it,” she added.

The housing shortage does not only affect the large conurbations. Meryem, a 44-year-old academic who asked to be used only by her first name, lives in Mardin, a city in southeastern Turkey near the Syrian border. For two years, she and her husband, also graduates, have been waiting for an opportune moment to buy a house, but without success.

“An apartment suitable for us and our child costs 1.5 to 2 million lira in Mardin,” Meryem said, adding that the government’s loan program was beyond her family’s means. “We have a kid who will be going to high school next year. And because of inflation, the money we spend on food alone has doubled. If we take out a 1.5 million lira loan today, we will only have 4,000 lira left for the month after the loan payment,” she said.

Tarik Sengul, a senior urban policy scholar at Middle East Technical University in Ankara, said that middle-class professionals like doctors, engineers and bankers used to be able to buy high-quality houses with loans, but profound changes in the markets have changed everything . “Although this mechanism remains operational to some extent, we now live in a world where asset markets in general, and real estate markets in particular, are becoming increasingly self-referential — that is, creating their own reality,” Sengul told Al-Monitor . “And the income generated on the labor market from jobs and professions that define the middle class are no longer sufficient to play along.”

According to the scholar, the middle classes are now exploring “how to become players” in housing and other wealth markets, often by venturing into risky territory. “Anyone who has recently turned to bitcoin and similar speculative investments is taking big risks. In this context, the house that one wants to buy to feel comfortable has itself become a source of distress,” he said.

Leave a Comment