Homebuyer demand soared 50% in Turkey after public lenders unveiled mortgage loan packages at historically low-interest rates in June to help stimulate the economy following the coronavirus pandemic.

Last week, Turkey’s three largest state lenders Ziraat Bank, VakıfBank and Halkbank and two of their participation banks Ziraat Katılım and Vakıf Katılım announced in a joint declaration that they are delivering four loan packages including mortgages for new houses and loans for vehicle purchases, locally manufactured goods and holiday expenses with annual interest rates running below inflation.

Within the scope of the housing package, the mortgages for both the new houses and secondhand housing units will have up to 15 years' maturity with interest rates as low as 0.64% and a grace period of up to 12 months, the banks said, while the low equity-down payment rate starting at 10% will be applied for the use of financing.

In order to ensure that a large number of customers benefit from this opportunity, the amount of financing that can be provided per customer will be limited, and financing up to TL 750,000 (approximately $110,000) will be available for residences in three major cities, namely Istanbul, Ankara and Izmir, while a maximum of TL 500,000 will be put in place for other cities.

Artificial price hikes could derail sales

Sector representatives said demand for housing increased 50% in almost a week as apartments for sale are filled with interested buyers. However, interest has not translated into sales yet due to unfair price hikes by some house owners and real estate companies as well as a lack of sufficient down payment from buyers, they noted.

Nizameddin Aşa, president of the Istanbul Chamber of Real Estate Commissioners and Consultants, said the housing demand increased significantly for middle-income families in particular after the drop in mortgage rates.

"People jumped to the market after seeing available low-interest, 15-year mortgage plans. However, only 5% to 10% of the demand turned into sales until now mostly because of unfair price hikes and lack of down payment cash," Aşa said.

Aşa noted that the real estate sector is experiencing a bubble, which is expected to disappear soon, and homeowners will have to reverse price hikes.

Atalay Demirbaş, CEO of Demand Grup Construction, told Anadolu Agency (AA) that housing demand had been deferred in recent years due to high mortgage rates until the last quarter of 2019. "The market fell back into stagnation again in March due to the pandemic."

The sales of residential properties in Turkey increased by 8.9% over the January-April period, lifted by sales with mortgages, according to the Turkish Statistical Institute (TurkStat) data.

Overall house sales reached 383,821 in the first four months, while sales of mortgaged houses increased by 141.4%, reaching 146,387 units. However, the pandemic’s initial impact was hardly felt in April with property sales recording a 55.5% year-on-year decrease.

Nearly 1.35 million housing units were sold in the country in 2019, while up to 45,500 houses were bought by foreigners, with Istanbul, Bursa and Yalova apparently the most attractive cities for foreigners.

Demirbaş said they are now observing a rejuvenation in the market due to the new mortgage loan packages by public lenders.

"Increased mobility in the real estate sector also impacts more than 200 other industries from construction and furniture to transportation," he added.

Demirbaş said demand has increased for both residential and investment purposes while buyers are mostly looking for three or four-bedroom apartments with large balconies in low-rise buildings with gardens.

"The sector could potentially make enough sales in the next two months that are normally achieved in a year if unfair price hikes are prevented and banks continue to offer low-interest mortgage loans."

He also warned that real estate companies that are taking advantage of the growing demand by artificially inflating prices will have to roll back their prices soon as they will not find any buyers.