As the old adage says, “If something appears too good to be true, it probably is.” We are optimistic by nature. But prudence still suggests caution.
Which is why we react with caution to the recent and much-touted report by the Global Property Guide that Turkey is the “most attractive property market” in Europe. The report gushes that foreigners can not only sweep up deals in Turkey, but can also benefit from Turkish bank loans.
Yes, Turkey is “under-leveraged” in terms relative to more mature markets. Yes, housing credits in Turkey, at roughly 5 percent of GDP, are far lower than in fully developed economies where they typically run to 100 percent or more of GDP. Perhaps we really are in the sweetest housing and real estate market in the world. The spate of building, the skylines dotted with construction cranes and the advertising for new housing developments certainly support such optimism.
But caution should reign. Thus we think the Banking Regulation and Supervision Agency, or BRSA, made the right decision last week when it put a brake on loans. As of Jan. 1, housing loans from banks will not be allowed to exceed 75 percent of the value of property being purchased. In the case of commercial real estate, this cap is set at 50 percent. BRSA is mulling further measures, including cuts in tax incentives to real estate investment trusts, which dominate large apartment complex construction.
We also note the warning last Friday from the IMF that rapid growth of housing loans poses a risk if “left unchecked.” Turkey’s overall growth this year is expected to be in the range of 8 percent. But housing credits are expected to have risen over the same time by 28 percent.
It is worth remembering that before the world economy effectively imploded in 2007 over a housing bubble in the United States, the U.S. real estate market was full of enthusiastic buyers, sellers and lenders. Now we know better.
It is worth remembering that Spain, the largest of Europe’s deeply troubled economies, is staring at economic wreckage largely blamed on an overheated real estate market. The country’s banking sector has $240 billion in “problematic exposure” out of a total of $580 billion invested in housing and real estate development.
The president of one real estate developers association, Turgay Taneş, may be correct that the sector needs and can sustain further development. And he may also be correct that curtailment of the boom in construction will ultimately harm consumers. Maybe.
But we think the more serious threat to Turkish consumers is a return of the “boom-and-bust” cycles that have characterized Turkey’s economy over the past half century. It may be that the near-miraculous rise of Turkey’s housing sector is a sure thing. But let’s make sure. The caution of BRSA and the IMF is worthy of emulation elsewhere among government regulators.
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