Within the last decade, developers are actually building homes, malls and office buildings in a record pace. The true-estate industry has anchored a 5% average rate of growth from the $800 billion economy since 2002, accounting for 30% of gross domestic product over that period, in accordance with Intes, Turkey's union of construction-industry companies.
But a sharp decline within the Turkish lira and rising interest levels, in addition to political turmoil since not too long ago, are threatening to slow that growth engine. Investors will also be reluctant to acquire real-estate on a 16-month election cycle which could chart Turkey's path for the next decade.
Already, apartment for rent have slumped because buyers have to pay higher interest rates on mortgages, now at the average 14% in comparison with record lows of about 7.4% in May 2013.
"Higher rates along with a weakening currency are negatively impacting property sales because individuals can't plan in advance and ... don't have a trust," says Fulya Kenber, a 58-year-old Century 21 broker in Istanbul's central Besiktas neighborhood.
Emlak Konut GYO, EKGYO.IS -0.45% the greatest Turkish real-estate developer, said home sales plummeted 39% in January compared to the previous month. Analysts said the exact property giant is forecasting sales of 10,000 units in 2010, down from 15,175 a year ago.
"Easily said there's high demand and the ones aren't scared, I'd be lying," says Burcu Alim, a sales representative at developer Agaoglu's headquarters in Atasehir, an early pasture around the Asian side of Istanbul which has been changed into a dense district of soaring apartment blocks.
Meanwhile, the lira's slump—of up to 30% with a record low up against the dollar—is turning it into tougher for some commercial tenants to spend rents. Most retail leases in Turkey require stores to repay rent in euros or dollars, but sales are common in lira.
Consequently, numerous landlords were forced to deliver emergency price cuts that can help tenants make ends meet. Turkey's second-biggest developer, Torunlar GYO, said it fixed the rate of exchange at 1.95 liras per dollar in January—then an 18% discount—for tenants at Mall of Istanbul, a landmark project in just minutes from Turkey's biggest airport.
The plummeting lira even offers created headaches for several developers, whose foreign-currency debt due within 12 months surged more than fourfold to $101.3 billion in 2013, central bank data show.
Investors took note, punishing real-estate companies with large external debt with no foreign-currency income. Sinpas GYO's shares have dropped 56% because lira selloff started in May following the U.S. Federal Reserve signaled a stop to its monetary easing. Turkey's benchmark BIST 100 Stock Index fell 34% from the same period.
Because lira fell, pushing prices higher, the central bank greater than doubled an integral interest to guide the currency and convince investors it's going to fight inflation. Analysts the move will hamper the economy.
"I can't think the development industry can set the framework for and always support economic growth," says Gulay Elif Girgin, chief economist at Seker Purchase Istanbul.
To be certain, the slowdown may show to be a temporary hiccup.The country's young population, which has a median era of 30, supports interest on roughly 400,000 new homes annually, analysts say. Rising incomes that tripled to a lot more than $10,000 since 2002 have stoked interest.
Also, while mortgage rates have jumped from record lows, they are still below historically prohibitive rates that had been often 50% in 2002. Premier Recep Tayyip Erdogan's Justice and Development Party, or AKP, continues to embrace real-estate development being a driver of growth and possesses unveiled offers to support property prices.
But GDP growth is forecast to fall by half to two% in 2010 and doubts are growing about several megaprojects promoted from the government, including turning a major swath of Atasehir in to a global financial center and a $30 billion plan to develop Istanbul's third airport.
Also, sales and leasing have to get for that real-estate engine and keep humming. That will get harder as skyscrapers rise on the Asian and European hills lining the Bosporus.
Some developers like Agaoglu have resorted to zero-involvement in-house financing to take overall loan rates for investors and close sales. Virtually all the firms offer deep discounts as high as 40% to lure buyers before construction starts.
Turkey's government may be using land sales and discounted loans to spur homeownership for at least 30 years. But since the AKP arrived at power in 2002, the government has stepped around the gas, boosted by strong demand.
Since 2007, property values have jumped by 36% nationwide, as outlined by emerging-markets real-estate data provider Reidin. Demand am strong that even 2008 collapse of Lehman Brothers Holdings Inc., which triggered a universal financial disaster and dragged Turkey in to a recession just last year, didn't hurt local home buyers' appetite.
But supply have been doing demand. In the four years before the economic turmoil, new apartments averaged 558,000 annually. That compares approximately 200,000 as Mr. Erdogan's government stumbled on power.
Meanwhile, investors are actually spooked by persistent political unrest that first boiled over in June with protests over Mr. Erdogan's plan to build a mixed-use building which has a retail center in Istanbul's central Taksim Square.
The environmentalist sit-in converted into nationwide antigovernment demonstrations when police used lacrimator and water cannons to disperse activists. And recently, Mr. Erdogan's allies are already ensnared in a bribery investigation mostly tied to construction deals, forcing a cabinet shuffle in December and threatening the AKP's antigraft record ahead of elections.
Turkish officials hope that political turmoil will calm once elections have ended, and home buyers will resume the market.
"Real estate property would be the biggest money generator for your government and possesses been a decisive aspect in generating wealth, which has spread all through the populace as property prices rose," said Bertug Tuzun, an analyst at Ak Investment in Istanbul. "The federal government is sustaining real-estate demand with its projects."
A digger works over a plot that can host an office tower in Atasehir, an Istanbul neighborhood the costa rica government really wants to change into a universal financial hub. Emre Peker/The Wall Street Journal
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