Turkey's builders back on defensive after a standout 2020

In the six months to November, cash loans to the sector rose by 49 billion Turkish lira ($6.58 billion), propelling the hiring of some 500,000 workers. But even while COVID-19 cases remain high and the economy has slowed into the winter, with mortgage sales dropping 71% last month, companies expect no new burst of fiscal or monetary support this year.


Reuters | Ankara | Updated: 20-01-2021 16:43 IST | Created: 20-01-2021 16:16 IST
Turkey's builders back on defensive after a standout 2020
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Turkey's construction sector, the biggest loser in a 2018 currency crisis, emerged from its long spell in the wilderness to be a surprise winner in 2020 as coronavirus fallout battered the rest of the economy. But top sector executives say it was only a brief reprieve now that the government has turned its attention to fighting inflation rather than boosting credit, leaving builders facing higher costs, fewer buyers and a difficult year ahead.

House sales that boomed in the summer on the back of a state-driven lending spree have skidded in recent months as the central bank hiked interest rates to 17%, among the highest borrowing costs in emerging markets. Both the bank and Turkish President Tayyip Erdogan have pledged to lower double-digit inflation, suggesting tight monetary policy will continue to dampen mortgage sales and project financing, industry heads told Reuters.

"We benefited from the loans ... but it was short lived," said Ismail Kazanc, CFO of Torunlar REIC. "Plans for new projects are now hit by an increase in financing and construction costs, as well as fluctuating demand," he said. "We think the second half of 2021 will be better" as inflation and rates dip, Kazanc said.

The construction sector, long an important piston in Turkey's economy, had contracted for eight straight quarters when the coronavirus pandemic hit. However, the sector fared better than the wider economy when the crunch came, shrinking by just 2.7% in the second quarter of 2020 compared to a 10% contraction overall.

Construction then became the first sector to rebound, and soared by 6.4% in the third quarter as annual credit growth leapt to 50% driven by state banks and regulations meant to soften the fallout from the pandemic. Mortgage rates plunged to 0.64%, driving record house sales in July.

BACK TO EARTH As recently as October, construction was the only sector to add jobs on an annual basis. In the six months to November, cash loans to the sector rose by 49 billion Turkish lira ($6.58 billion), propelling the hiring of some 500,000 workers.

But even while COVID-19 cases remain high and the economy has slowed into the winter, with mortgage sales dropping 71% last month, companies expect no new burst of fiscal or monetary support this year. "Mortgage and commercial loan rates are expected to remain high," said Tayfun Kucukoglu, chairman of the Construction Materials Industrialists Association. "Higher rates are likely to limit the performance of the sector in 2021."

The 2018 crisis laid bare Turkish builders' heavy reliance on cheap foreign debt to fund a boom of highways, hospitals and residential and commercial towers across the country. Since then economic growth has fallen to around 1%, from an average of 5% that came to define Erdogan's nearly two decades in power. A Reuters poll expects GDP to rebound to 4% this year.

Reflecting last year's boom, the construction sector's share of overall GDP rose to 5.7% in September from 5.4% at the end of 2019. But from November to December alone, new business orders fell by 5.9 points, according to a sector report. "The recent lockdowns and other coronavirus measures will slow business in the first quarter," said Can Fuat Gurlesel, an economist and consultant for business associations.

"Neither loan nor mortgage rates can support the sector, which means the financing side is not likely to boost construction either." 

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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