Inflated Dreams of Popular Real Estate Bubble
Inflated Dreams of Real Estate Bubble?
The decline in real estate demand has slowed the pace of price increases. In some areas, not only has the rate of price increase slowed, but prices have also decreased. In this article, we will discuss the main reason for this negative atmosphere in prices, the decline in real estate demand, and the concept of an economic bubble. We will discuss if all price decreases mean if it means real estate bubble exploded or is it normal for the economy.
Why Has Real Estate Demand Decreased?
First and foremost, we need to grasp this reality: 92% of real estate investors in Istanbul are Turkish. This statistic can be obtained from our national statistics department, TUIK. In our Estates Istanbul Zoom meetings, we also present how this calculation is made to our investors. Therefore, examining why local investor demand has decreased will facilitate our understanding of the problem. Since the beginning of 2023, both the national and global agendas have been relentless. Turkey’s first agenda in 2023 was undoubtedly the devastating Hatay earthquake, followed by the presidential elections.
On the global agenda were the Russia-Ukraine war and the recently initiated Israel-Palestine war. Among these, the biggest factor reducing demand was undoubtedly the presidential elections. Because local investors knew that even if the current AKP government was elected after the elections, major structural reforms would occur due to HIGH INFLIATION in the country, and they were cautious. Now let’s get to the main reason, HIGH INFLIATION.
Consumer’s Adaptation to High Inflation
Is there anything worse for an economy than high inflation becoming a habit? I’m not sure. In economies where everything is constantly becoming more expensive, both investors and consumers create demand based on inflation pressure, thinking, “I might not be able to afford this tomorrow, so I should buy it today.” Due to the devaluation of money, borrowing becomes easier. In other words, when the fear of “I won’t be able to buy this at this price tomorrow, so I should buy it today” becomes a habit, it pulls economies down unsupportedly. It creates bubbles in the market. The measures taken by both the Turkish Ministry of Finance and the Turkish Central Bank are entirely a structural reform and will allow the country’s economy to rest a bit.
How Did the Central Bank of the Republic of Turkey Implement a Structural Reform?
First, it raised the policy interest rate from 10% to 30% in two interventions. It didn’t stop there; it made accessing credit more difficult. The importance of credit scores increased. It made it difficult for local investors to play the game of “let me draw a credit of 10 million TL, pay it back in 5 years, and the real value of that 10 million TL debt will drop to 1 million in the meantime.”
What is Real Estate Bubble
Bubbles occur in regions where this game is played. No bubbles form in markets due to recorded, logical demand. Real estate bubbles in the economy are formed by unregistered money or wrong economic policies. In short, uncontrolled situations create bubbles. As I always say, not every place’s price has decreased.
The prices in the regions where the investor profile I described above invests have fallen. Because these investors can no longer access resources that easily. There will undoubtedly be positive effects of this; a distinction will be made between quality and non-quality projects, and we are expecting positive impacts on ROI ( return of investment ) as well.
We will discuss how inflation, interest, and accessibility to credit will affect investment returns in Istanbul in our next article. If investing in the right project, at the right time, and at the right price is important to you dear invesstor, please get in touch with Estates Istanbul today.
