Too many homes, just a few buyers in Turkey

Thinking that the housing demand they experienced in 2004 and 2005 would continue, many companies operating in the construction industry accelerated their home-building speed. Now the crisis has caught them unprepared, as construction companies have housing in their hands to sell than they can find buyers.

The construction industry has been hit hard by the global economic crisis, said Erhan Boysanoğlu, chairman of Mesa Mesken Inşaat. "We expect the market to be revived by the last quarter of the year, which will hopefully enable us to get rid of our housing stock by the spring of 2010."

Measures
"Following the 2001 economic crisis that hit Turkey, plenty of new players surfaced in the construction industry. We foresaw that it would eventually be a problem. We have taken the necessary measures. Currently we are not experiencing any troubles," Boysanoğlu said.

Currently the value of ready-to-sell residences in Mesa İnşaat’s hands totals 200 million Turkish Liras. The residences still under construction by the company are worth 800 million liras.

Ağaoğlu İnşaat’s unsold residences are worth 500 million liras.

"Ağaoğlu currently has 850 residences in stock. The companies that have stock in times of crisis will have a serious advantage when the market comes back to life," said Ali Ağaoğlu, chairman of Ağaoğlu Holding. "Some one million residences should be constructed to renew the current residence stock. Crises end and these residences will be sold," he said. "Those who construct in times of crisis guarantee a future profit. We had five projects back in 2001. Construction costs also decline in times of crisis. When the market rekindles you have an advantage," said Ağaoğlu.

"This month I will start up projects worth a total of $3 billion. I am expecting revenue of $5 to 6 billion," he said.

Aşçıoğlu İnşaat also has unsold residences in stock, which are worth a total of $150 million.

The oversupply of unsold residences is not a problem just for the private sector. The state-owned Housing Development Administration of Turkey, or TOKİ, which sold 274,000 residences during the past six years, is currently stuck with 19,307 residences in its hands that are ready to be sold. Some 66,000 residences are also under construction.

It has been said that the value of the ready-to-sell residences held in stock has reached 20 billion liras, while the debt of contractors, who often work by obtaining credit, has neared $6.5 billion.

Although the industry’s current situation looks troublesome, the representatives of the construction industry remain hopeful for the future. They believe this crisis will be overcome just like the 2001 economic crisis. From their experience in the 2001 crisis, the sector players believe they will be able to sell the residences in stock rapidly after the global economic crisis draws to an end.

Believing in the fact that they will recover losses as soon as the crisis passes, the construction sector’s players are seeking a little support from the government, just to help them survive the current crisis without grave losses.

Discrepancy
"No one thought about the supply-demand equilibrium. Too many residences were built thinking that the sales would continue the way they were in 2004 and 2005. That has generated an imbalance," said Erdal Eren, president of the Turkish Contractors Association, or TMB.

"Then the interest in real estate declined and banks’ means to issue loans contracted due to the deepening impact of the global turmoil," said Eren. "No one is able to predict when things would get better. Therefore, we have explained at a meeting of the Economy Coordination Council that the efforts of the private sector would not be enough to revive the entire construction sector," he said. "We have said that the revival of the sector plays a major role in reviving the economy. Therefore, we told them that the state should help the sector stand tall," added Eren. "We are still waiting."

"The industry should liven up with a reduction in deposit and loan interests. Real estate will continue to be the most dependable investment medium," said Necati Akyazıcı, chairman of the Canan Yapı.