Turkish conglomerates race into construction, seek quick profits

Reuters

Turkish conglomerates are racing to add high-end apartment blocks and office towers to Istanbul’s rapidly-changing skyline, turning to one of the world’s most profitable real estate markets for quick returns as other parts of the economy suffer.
Anadolu Holding, which has interests in banking, retail and brewing, plans to venture into real estate with two developments in Istanbul this year, while Aksoy Holding, an energy-to-tourism conglomerate, is building a luxury residential complex on the Aegean coast and plans another project in Istanbul.
Construction lies close to heart of President Tayyip Erdogan, who sees big real estate projects – both public and private sector – as a showcase for Turkey’s rising prosperity, as well as a vehicle for job creation and winning loyalty at the ballot box by increasing the supply of new housing.
But some economists warn that such investments risk fuelling volatile consumption-led growth and undermining government efforts to put Turkey’s economy on a more sustainable path.
They say they fail to address an under-investment in manufacturing technology that could erode the global competitiveness of Turkish industrial products and exports.
“Investments in construction create a doping impact in the economy in the short run but these are not quality investments boosting productivity,” said Haluk Burumcekci, an economist who runs the Istanbul-based Burumcekci Consulting.
“And in the long run such investments do not help a sustainable growth model.”
The government says it is committed to ensuring sustainable growth. It has pledged reforms to boost labour productivity and household savings, and make Turkey one of the world’s top-10 economies by 2023. Output grew by a stronger-than-expected 4 percent last year, but it was largely consumption-led growth.
Turkish house prices have jumped 70 percent since 2010, according to Turkey’s Association of Real Estate and Real Estate Investment Companies (GYODER). Turkey topped global rankings with price rises of 18 percent last year alone, according to the Knight Frank Global House Index.
Strong population growth and demand from investors elsewhere in the Middle East, who see Turkey as a relative safe haven in the region, are fuelling the construction boom, despite persistent worries among some investors about a housing bubble.
Demand for new homes stands at least half a million a year, almost doubling with the need for renovating existing houses, industry executives say. They estimate more than a third of Turkey’s 20 million residential buildings need refurbishment, many to meet tighter earthquake regulations.
“The potential is still there,” said Omer Faruk Celik, head of the Real Estate Developers and Investors Association. “Even though profitability is not very high in construction, the shorter return period on investment makes it more attractive than other areas of industry” he said.