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If you are an investor specializing in the field of economics or at least familiar with developments regarding the Turkish economy and want to buy a property in Turkey for the purpose of investment, the news of inflation must raise your fears and make you rethink again, whatever the economic feasibility drawn from this investment, today we will discuss the issue of inflation in Turkey and its impact On the real estate market in particular, and in this way, we have made it clear to investors precisely.
inflation rate at Turkey between 1992 and 2026
Initially, if we look at the annual inflation rate in Turkey, we will easily find several clear sectors on the above chart:
- The period before 2002, during which annual inflation rates were very high, reached 104% in 1994.
- A period between 2002 and 2018, in which annual inflation rates were stable at rates of less than 10%
- The post-2018 period, in which we find a rise in inflation rates above 10% to reach 16.33% in 2018 and slightly less than that in 2019 and around 15% in 2020 and in 2021 it is expected to be around 14% by the end of the year and with expectations of a drop in this percentage of inflation to below 10% again after 2025.
What do we conclude?
- Before the year 2000, Turkey was in chaos and considered one of the very backward countries due to the high rates of inflation, the lack of order and the lack of participation in the sectors of industry and trade.
- In the period between 2000 and 2018, Turkey began to improve significantly, and the reason is often due to the efforts of the ruling party in this period, which is the Justice and Development Party, and thus it maintained low inflation rates and its role significantly increased in participation in the industrial and trade sectors.
- In 2018, negative political events began to affect the local currency negatively (we will discuss this later), which led to higher inflation rates compared to the previous years.
- In 2020, the Covid-19 epidemic began, and it also negatively affected all economies of the world, and therefore inflation rates remained relatively high
Turkey today plans to reduce annual inflation rates to below 10% and aims to be one of the ten largest economies in the world by 2023.
Is there a link between high inflation rates and weak local currency?
Certainly, the negative political events that Turkey experienced, especially in 2018, when Turkey detained the American pastor Andrew Bronson for his participation in the coup attempts that occurred in 2016. From the exchange rate of each dollar was equivalent to 4.5 Turkish liras until it became within one week each one dollar equaled 7 Turkish liras, at the same time inflation rates achieved the highest number ever since 2002, which is 16.33% and this indicates that the relationship is proportional Inversely between the depreciation of the Turkish lira and the rise in inflation.
This means that the high inflation rates are not due to a real weakness in the Turkish economy, but rather because of purely political events. We will not be able to list all the examples here, but you can observe the effects of the wars that Turkey carried out on Armenia, its military participation in Libya and Syria, and oil exploration in the Mediterranean near The coasts of Greece and the announcement of Aya Sophia as a mosque. These are political events that negatively affected the Turkish lira. In return, every victory that Turkey achieved has a positive impact on the Turkish lira, and this happens naturally for any country in the world, but the fact that Turkey has a developing economy affects these events negatively or positively in a large way.
The above chart shows that every fluctuation in it was due to politics and not to a weakness in the economy.
Is the Turkish economy solid and reliable?
Turkey currently occupies the 11th economy in the world with efforts to reach the 10 largest economies in the world by 2023 and is moving towards that at an accelerating pace that we cannot detail here, but we can infer the strength of the Turkish economy through Turkey’s experience with the Covid-19 epidemic, where an economic downturn only In 2020, and in 2021, with the continued spread of the epidemic and the presence of new variables from it, the Turkish economy was able to achieve high growth rates even higher than the pre-Covid 19 rates, as the chart below shows:
We must not forget that in 2023 the Treaty of Lausanne, which prevents Turkey from benefiting from the revenues of the ships crossing the Bosphorus (about 136 cargo ships daily crossing the strait for free), will expire. What we have noticed is that the transportation sector has a high cost in Turkey due to the import of fuels from neighboring countries.
What is the impact of the inflation rate on the real estate market?
The real estate market in Turkey is local par excellence, despite all the advertisements we see continuously about the increase in foreign demand for the Turkish real estate market. Today, the local purchasing power constitutes more than 97% and sometimes 99% of the number of complete properties sold in Turkey, and foreigners constitute a proportion of The most is only 3%, and therefore high inflation rates have a negative impact on the consumer price index, which in turn affects the real estate market negatively, but in a second way, because the negative performance of the consumer price index pushes people to stay away from luxuries and limit themselves to necessities. Is there a greater necessity than a house for housing or A shop to make a living? .
The percentage of the consumer price index increases with time, because Turkey has gone through two major negative incidents, the first of which is the story of the American pastor that we talked about, which led to the drop in the exchange rate of the Turkish lira from 4.5 for every dollar to 7 Turkish liras for every dollar. The second important event is the spread of the Covid-19 epidemic all over the world. The world, therefore, we note from the chart that once the performance improved in mid-2019, it declined again with the beginning of 2020 so far due to the negative effects of Covid 19, but as we mentioned previously, real estate, whether for the purpose of renting or investing, is a necessity and cannot be dispensed with or postponed.
Evidence for this is
the number of properties sold in Turkey, according to the official Turkish Statistics website:
The demand for real estate in Turkey is always constant, and the Turkish government is keen to attract local and foreign investments by all available means.
Remember that today you and your family can obtain Turkish citizenship for free if you buy real estate worth 250 thousand dollars and at the same time make a profitable investment.
We talked in previous articles about the feasibility of real estate investment in Istanbul, and to obtain a free professional consultation, you can contact us.