S&p: Possible Rate Hike By Fed Main Risk For Turkish Housing Sector

- A possible rate hike by the U.S. Federal Reserve Bank created an uncertain environment regarding prospects for foreign capital flows to Turkey, introducing both risks to the forecast on housing market, according to a Standard And Poors (S&P) research, released on Tuesday.

"Residential property prices in Turkey had rose strongly in 2014, gaining more than 16 percent in nominal terms. Real price gains exceeded 7 percent, up from 6 percent recorded last year" said in the S&P research with the headline, Housing Markets In Israel, Russia, South Africa And Turkey Show Resilience To Weaker Economic Conditions.

"The market softened temporarily in the first half of 2014 amid slowing economic growth and interest rate hikes, but rebounded strongly as monetary conditions loosened and confidence returned" said the S&P in the research.

"We forecast a continuation of nominal and real home price appreciation over the next two years. Funding conditions are likely to remain supportive for the housing market in the near term. Overseas buyers' interest in Turkish real estate will continue to support the market, but strong structural demand from Turkey's young and growing population will remain the key driver of housing market activity" it added.

Economic and financial conditions in the first half of last year weighed on the Turkish housing market, the research pointed out, pushing the average mortgage interest rate to 13.6 percent in April 2014, up from 8.3 percent at the low point in June 2013, and mortgage lending growth started to decelerate.

Home price growth had slowed to 3.6 percent year on year in real terms by May 2014, compared with 6 percent in December 2013, the research said, pulling home sales down 10 percent in the first seven months of the year.

Mortgage interest rates had been trending down since April 2014, dropping to 10.8 percent by mid-February 2015, said the research, lending for house purchases had picked up in autumn, although by December growth rates were still twice as low as in 2013, at 13.5 percent, according to the research.

"We expect domestic demand to rebound in 2015, supported by more accommodative monetary conditions and a boost to real incomes due to falling headline inflation on the back of lower oil prices, supporting demand for residential properties this year" it added.

A possible rate hike by the U.S. Federal Reserve Bank on the one hand, and quantitative easing by the European Central Bank on another, created an uncertain environment regarding prospects for foreign capital flows to Turkey due to Turkeys' dependence on such flows, the S&P stated in the research, adding the following comment:

"In addition to our projections for strong housing demand in 2015, we also anticipate a strong supply response. The number of dwelling units authorized for construction exceeded 1 million in the year to September 2014, a 25 percent increase compared to the same period of last year. If these plans move forward, they should limit price pressures somewhat, although we still expect the market to post strong gains in nominal and real terms, of 14 percent and 7 percent, respectively."

According to the research, Turkish population is expected to grow by about 11 percent-12 percent between 2012 and 2023, according to the Turkish Statistical Institute. Istanbul's population is projected to increase by 20 percent over this period, to 16.6 million by 2023.

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