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There is no doubt that successive economic cycles have a significant impact on the real estate market in any country and, more importantly, on real estate investment in these countries. This is because real estate developers may face immense pressure during periods of inflation and recession, which can lead to variability in project delivery dates to investors. We have emphasized in several previous articles that the timeline for real estate investment is one of the key foundations of successful investment.

How Does the Economy Affect Real Estate Markets?

The behavior of real estate markets is influenced by several factors during economic cycles, including:

  • What is the interest rate set by central banks and how does it relate to mortgage interest rates?
  • What are the pricing rates for construction materials, and how do their prices fluctuate during a project’s construction?
  • What are the shipping costs if the country where construction is taking place imports construction materials from abroad or partially?
  • What incentive packages will the government provide to developers to prevent their financial difficulties?
  • What will be the inflation rate in a country, and how long will this inflation remain high before returning to normal levels?
  • Will this country enter into an economic recession during the economic cycle or not?

Economic cycles are similar in their stages but do not necessarily align in terms of duration.

Economic cycles typically go through four main phases:

Recovery:

  • Begins after a recession.
  • Increased production and higher employment levels.
  • Improved economic confidence.

Expansion:

  • The economy is at its peak.
  • High growth rates, with increased consumption and investment.
  • Prices may start to rise (inflation).

Recession:

  • Decrease in economic activity.
  • Decline in production and rising unemployment.
  • Decreased confidence and spending.

Depression:

  • A severe phase of recession.
  • Sharp and prolonged decline in economic activity.
  • It can last for a long time and lead to structural changes in the economy.

These phases recur periodically and are usually influenced by internal and external factors. It is not necessary for every economic cycle to reach a recession stage and remain there for a long time. Additionally, it should be noted that the stages of economic cycles differ from one country to another at the same time. For example, as of April 2025, the U.S. economy can be classified as transitioning from inflation towards recession unless the U.S. government intervenes and prints more money, thus avoiding both recession and depression and starting a new economic cycle from the recovery phase. Meanwhile, some European countries are currently in a recession, while China is entering a recovery phase with the beginning of a new economic cycle.

The variation of economic cycles and the differences in their stages from one country to another create unique opportunities for real estate investors. However, since these cycles are not similar or synchronized across the globe, choosing the right country and the appropriate measures within that country requires in-depth study.

In a previous article, we mentioned the real estate portfolio, emphasizing that investors should have both liquidity and properties in their portfolios. Liquidity tends to increase during the profit-taking phase, which is the expansion phase, while liquidity decreases and properties increase during crisis phases, which include price reductions like those seen in recessions and depressions. For more details, you can refer back to the article where we discussed practical applications of the Turkish real estate market phases in recent years and the best timing for buying and selling.

A real estate investor who does not study economic cycles and does not recognize which phase we are in when making a purchase is significantly risking the success of their investment. Unfortunately, based on our daily observations, more than 90% of individual investors tend to buy properties during the expansion phase and try to sell them during the recession, in stark contrast to experienced investors or investment funds that buy properties during recession phases and sell them during expansions.

To stay on topic and discuss the economic impact on the real estate market, we will return to answer the questions we posed above and provide practical examples:

1- What are the interest rates set by central banks, and how do they relate to mortgage interest rates?

The interest rate set by central banks is the price determined for borrowing or lending between banks. This rate is used as a primary tool in monetary policy to control inflation, support economic growth, and regulate the money supply.

Examples of interest rates in some countries as of April 2025:

  • U.S. Federal Reserve and Bank of England: 4.5%
  • European Central Bank: 2.4%
  • Saudi Arabian Monetary Authority: 5.5%
  • Central Bank of the UAE: 5.15%
  • Bank of Japan: 0.5%
  • Central Bank of Egypt: 25%
  • Central Bank of Turkey: 46%

Mortgage interest rates are usually higher than the central bank’s base interest rate.

To understand the extent of the increase in interest rates in recent years, it is enough to say that the interest rate at the U.S. Federal Reserve three years ago, specifically in March 2022, was 0.5%, and it is now 4.5%—nine times higher than the 2022 rate. This, in itself, places significant constraints on the real estate sector, as mortgage loans appear unattractive since the interest on installments may exceed the installment amount itself. This explains the slowdown in growth in the real estate sector at the end of the expansion period in the markets.

It is a sequential chain: if an investor cannot purchase a property through mortgage loans, how will a developer be able to deliver the project on time, knowing that the developer does not have a budget sufficient to cover all construction costs but relies on investors’ funds in the early stages of the construction process?

In Turkey, the current interest rate of 46% is the highest in the world. While it may serve as a bitter medicine for the economy, it certainly has a very negative impact on the real estate sector, as evidenced by current observations of delays in delivering old projects and a noticeable reduction in the number of new projects being launched.

Does this mean that real estate investment in Turkey is unprofitable?

Certainly, this line of thinking lacks foresight when posed, as a market in recession presents the optimal opportunities to buy properties sometimes at prices 40% lower than their actual value, which can be sold later during the expansion phase for substantial profits. It can be said that real estate investors in Turkey have generally not achieved the profits they dreamed of, and this is indeed true. The reason is not only missing the ideal timing for buying and selling but also a variety of other reasons we have discussed extensively in our previous articles, which we do not want to recount here to avoid straying from the current topic.

At this point, we will not address solutions, as they are always subject to change based on rapidly evolving market variables. However, we can say that you can obtain a free consultation by contacting us to learn about the optimal timing for buying or selling your properties.

2-What are the pricing rates for construction materials and how do their prices fluctuate during a project’s construction?

We observe the chart above, which indicates steel prices, and we notice how steel prices rose globally at the beginning of 2021, reaching their peak by the end of that year. This significant increase occurred in a short period, which will greatly affect real estate prices. Developers face a dilemma in making accurate calculations that provide purchasing opportunities for investors buying on installments, while also ensuring that costs are correctly calculated.

Now, if we turn to Turkey, a country that has experienced very high inflation rates, we can understand why its real estate sector has partially entered a state of recession since around mid-2023. It’s important to remember that a recession in the real estate market is not necessarily negative for investors; rather, it indicates that the current purchasing opportunities are the best, often at prices below market value, which is a crucial point for successful real estate investment.

3-What are the shipping costs if the country where construction is taking place imports construction materials from abroad or partially?

It is clear that shipping costs from China to the U.S., for example, rose significantly after COVID-19, reaching a peak in mid-2021. These costs then began to decline in mid-2022 after supply chain issues were resolved. Finally, we observe another increase in early 2024, this time related to global inflation.

Shipping costs for construction materials will undoubtedly affect the pricing of new properties, adding another factor to consider.

4- What are the incentive packages that the government will offer to real estate developers to prevent their financial difficulties?

The incentive packages provided by governments to real estate developers vary from country to country, but they often include a range of measures and facilities to attract investment in the real estate sector. Here are some common examples:

Tax Exemptions:

  • Reductions or exemptions from taxes on profits or properties.
  • Exemptions from registration or licensing fees.

Subsidized Financing:

  • Low-interest loans or interest-free loans.
  • Government guarantees for loans to reduce risks for financial institutions.

Planning and Construction Facilitation:

  • Accelerated procedures for obtaining necessary licenses and approvals.
  • Provision of land at reduced prices or through long-term lease contracts.

Incentives for Innovation and Sustainability:

  • Support for projects focused on sustainable construction or the use of modern technology.
  • Grants for projects aimed at improving infrastructure or providing affordable housing.

Public-Private Partnership (PPP) Programs:

  • Encouragement of collaboration between the government and developers to implement large projects.

These packages are used to stimulate economic growth, provide job opportunities, and improve infrastructure in local communities.

5- What will the inflation rate be in a country, and how long will it remain high before returning to normal levels?

High inflation rates also affect local construction material prices, labor costs, and equipment expenses. In Turkey, the annual inflation rate in 2023 was reported at 64% by government agencies and reached 127% according to some private agencies. Despite the significant discrepancy between these figures, both are considered extremely high. For an emerging economy like Turkey, any figure above 20% is substantial, with the goal always being to achieve inflation below 10% annually.

Even with a decrease to 42% at the beginning of 2025, this is still a very high rate. Currently, we can summarize the difficulties in the Turkish real estate market as follows:

  • Inflation exceeding 40%, indicating continuous increases in construction and labor costs.
  • Interest rates at the Turkish central bank at 46%, with mortgage rates even higher (depending on individual circumstances, property, loan amount, and repayment period), making installment property ownership unattractive.
  • A near-total absence of government incentive packages for real estate developers.
  • Lack of interest in real estate investment due to high and guaranteed returns from bank deposits.
  • Challenges related to the current political situation and ongoing fears broadcasted by opposition channels both domestically and abroad.
  • Lack of facilitation from the Turkish government for local investors.
  • Lack of facilitation for foreign investors as well (despite the continuation of the Turkish citizenship law for investment at $400,000).

If you want to know whether the Turkish real estate market is still promising for investment, ask yourself whether the difficulties mentioned above can be resolved or if they are permanent.

6- Will this country enter into an economic recession during the economic cycle or not?

Given that interest rates are high in most countries, this means that the real estate investment sector is experiencing partial or complete challenges. In a country like Turkey, it is very clear that a recession in the real estate sector currently exists. This is certainly not an ideal time to sell old properties; rather, it is more suitable to acquire other properties or wait until this recession ends and market activity resumes.