Supply and demand in the Turkish real estate market
According to what is known in economics, the theory of supply and demand is correct if both supply and demand are very high in competitive markets and prices cannot be controlled through specific suppliers. Therefore, this theory becomes correct and is explained by the curve shown below:
If the demand for a product or service increases and the supply is low, the price specified for that product or service is at its highest point.
But if the demand for a product or service is low and the supply is large, the price specified for this product or service is at its lowest point.
The midpoint represents the equation of both supply and demand and exactly then the price for that product or service is in the average ideal area.
This theory is correct in the real estate market in Istanbul because the number of real estate developers is very large, and the number of investors is also very large (we must bear in mind that all foreign investors do not represent more than 2% of the percentage of local investors in the Turkish real estate market).
Thus, the theory of supply and demand becomes correct, and this means that the increase in the number of properties available for sale represents a high supply and vice versa.
Investors also represent the demand component, which constitutes the second pole of the binary.
Now, the greater the demand and the less supply, the higher the real estate prices, and vice versa.
This, in fact, answers the question that we have been hearing in the recent period at a much higher rate than in the past, which is:
Why are real estate prices in Istanbul so high?
If we want to answer through practical reasons only, we talked in detail in a previous article: What are the reasons for the rise in real estate prices in Turkey 2022? About these reasons, but today we will answer through the theory of supply and demand, which is the topic of our article with practical examples.
So, the answer will be one of two possibilities according to the theory of supply and demand, which is either that demand is very high or supply is very low, both possibilities cause an increase in prices and let's discuss each of them:
Has the demand on real estate increased in Istanbul ?
According to the official statistics from the Turkish government, we can clearly notice the increase in demand since the second half of 2021 compared to the same period in 2020, and this means that there is an increase in demand of not less than 55% between the last year and the one that preceded it, and this in turn will lead to an increase in real estate prices in 2022 according to the theory of supply and demand.
Now let's move on to the second factor, which is: Is there a shortage of supply?
At the outset, we can easily say that a significant increase in demand necessarily leads to a shortage of supply, especially after the world emerged from the crisis of the Corona epidemic, problems in supply chains, inflation, and the high prices of construction materials all over the world.
All these factors and others reduce the real estate developers' desire to increase the established projects, and therefore the supply in the real estate market will not be able to keep pace with the demand and from it the real estate prices will increase.
Today, let's look at the new real estate market in Istanbul and compare it to previous years. We will find the following observations:
● A number of Istanbul districts do not have new options ready for housing immediately, and almost all their projects are under construction, such as Topkapi, Eyup, Kucukcekmece, Uskudar, and some neighborhoods of Kartal and Atasehir.
● Even in areas that still include some new options ready for housing, the largest and dominant part is the projects under construction everywhere, and this indicates a shortfall in supply against the high demand.
● In the past, all projects under construction were given instalments for an average period of 36 months in Turkish lira, and some ready-made projects even offer instalment plans.
Today, in most of the ready-made projects, there are no instalments, and in the projects under construction, a large part of them accepts only the full payment method. The instalments are limited to a section of the projects under construction, and their average duration is 18 months, and often in US dollars.
This, in turn, confirms that the rise in prices has a close relationship with inflation and the instability of the exchange rate of the Turkish lira against foreign currencies, as we will discuss later.
● We see a clear discrepancy in the number of projects offered in each of Istanbul’s areas, and therefore the theory of supply and demand varies from one area to another. This means that real estate prices in all areas did not rise with the same rate of increase in demand, but in varying proportions. We will not be able here to detail the supply and demand in each area, but we can provide a free consultation by contacting us to provide you with the best areas where prices are still better than others.
And now we come to the important question that many investors are looking for today, which is:
Should I wait for the supply to increase again in the Turkish real estate market, and thus real estate prices return to what they were before mid-2021?
The answer to this question will be incomplete unless we discuss all the possibilities and derive from them a reliable strategy in choosing the right time to invest.
The first possibility: waiting for an increase in supply and a decrease in demand, and both of these possibilities need to be achieved for a period of not less than 18 months (until most of the projects under construction are completed) and even after this time the demand can continue to increase, especially with Turkey’s turnout for the year 2023 and a new gateway to the future that will make it is a force to be reckoned with and a sure step on the way for the Turkish economy to be among the top ten in the world.
So, this is not guaranteed.
The second possibility: waiting for an increase in supply even without a decrease in demand. Here, it means a longer period than the first possibility, which could reach two or three years, and with high levels of global inflation and high construction materials prices, prices will never reverse, even if there is a lack of demand.
The third possibility: waiting for the demand to decrease even with the lack of supply, and this possibility is never guaranteed, especially with the advent of Turkey in 2023, as we mentioned previously, and therefore the expected demand for the real estate market is in continuous growth.
What is the best strategy for real estate investment in Istanbul now?
● If your goal is to obtain Turkish citizenship, then Turkish citizenship, even for 400 thousand dollars, is still an irreplaceable opportunity with a successful real estate investment.
● If your goal is residential, then buying real estate today is better than tomorrow because controlling global inflation is a matter that takes several years, and we will only expect more real estate prices to increase and the US dollar to weaken in the coming years.
● If your goal is an investment, you can divide your investment plan on a timetable. We can help you prepare it and thus get your first property now. When the supply increases later or the demand decreases, you can boost your investment and thus, in the medium and long term, you will remain profitable