Interest rate cuts boost confidence, bring mobility in construction industry

Published 30.09.2019 00:11

The recent rate cut by Turkey's central bank and the subsequent decline in housing loan rates have led to a rise in confidence in the construction sector.

The Construction Sector Confidence Index, which has soared by 15% since July, reached the highest level of 60.1% in September, the highest in 13 months, according to Turkish Statistical Institute (TurkStat) data.

The confidence index stood at 52.4% in July when the Central Bank of the Republic of Turkey (CBRT) cut the key interest rates massively by 425 basis points to 19.75%.

Following the rate cut, many banks, mainly public ones, reduced housing loan rates at the beginning of August.

Following the central bank's interest rate cut, banks, particularly public ones, reflected the fall in borrowing costs for their customers. The lenders went on to cut monthly mortgage loan interest rates from 1.49% to 0.99% since the first days of August and decided to apply this rate on 180-month maturities.

This decline in interest rates brought dynamism to the construction sector, which was reflected in the construction confidence index.

The index fell below 50% in May, stood at 52.4% in July and 55.5% in August and 60.1% in September – the highest level in 13 months. The index rose by 15% since July, when the interest rate cut began.

Following the rate cut in July, the CBRT cut its policy rate by 325 basis points to 16.5% at its September meeting. How this discount will be reflected in the sector in the coming period remains to be seen.


Turkish Contractors' Association (TCA) President Mithat Yenigün stated that the interest rate cut has led to a partial improvement in construction industry financing conditions.

Yenigün emphasized that in case of a permanent recovery in the economy and the sector in the coming period, the index could reach 77.1% as in July and 87% as in January last year, saying, "The government has recently taken new steps to invigorate the economy. We expect the upward trend in the sector to continue if the confidence environment in the markets is improved. For this purpose, efforts to reduce the basic fragilities of our economy are also important, and as the business world, we expect the targets and the subsequent steps to be taken in the 2020-2022 New Economic Program (NEP), which will be announced in the coming days."


On the other hand, Turkish Construction Industry Employers' Association (İNTES) President Celal Koloğlu noted that housing is one of the most important components of the construction industry.

Indicating that the rise in exchange rates and in inflation rates last year affected the housing sector, Koloğlu said that this led to a decline in sales. "However, private sector housing investments and urban transformation projects are continuing rapidly throughout Turkey. Housing interest rates have fallen gradually since August since the government embraced the issue. We see that the positive repercussions of the decline in interest rates are starting to manifest immediately in the sector."

The impact was reflected in housing sales in August. Overall house sales in the country increased by 5.1% year-on-year after seven consecutive months of decline, according to TurkStat data, as 110,538 houses changed hands last month.

Overall housing sales with mortgages, which constituted more than 30% of total sales in the sector in August, jumped 168% year-on-year, the data showed.

Koloğlu further pointed out that if private banks reduced housing loan rates to 1% like public lenders, mobility in the sector would increase and reflect on the entire economy.

Koloğlu said that they believe that the demand for housing will continue to rise in the coming period due to the sales, loan and interest campaigns implemented, continuing, "We anticipate that the construction sector will resume its growth trend if our government pursues policies to encourage structural reforms and investments."

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