Between June 2011 and 2012, house prices in Turkey increased by 10.5 percent. The rate for Brazil was 18.4 percent

As of June 2012, Turkey was third in the world in terms of housing price growth, according to the Global House Price Index. Should we be concerned? I don’t think so. Let me tell you how I read this picture. Last weekend, I was in Israel’s capital, Tel Aviv. I’ve always loved visiting Tel Aviv. It is a beautiful port city in the eastern Mediterranean. It’s a city that doesn’t have a history. It came and completely absorbed the ancient city of Haffa. Tel Aviv resembles Beirut, Alexandria, and Izmir. I had not been to Tel Aviv for the previous two years. This time, I was attracted by the high-rise apartments that are newly built or under construction. Normally in Tel Aviv there are only a few skyscrapers; there generally are three-floor apartments at most. This time, however, massive construction activity was going on in the city, as it is in Ankara and Istanbul. I was naturally curious why house construction activity had accelerated in Tel Aviv. I found the answer in the newspaper Haaretz on my return flight. Over the last five years, house prices in Israel have increased by 52.7 percent, and the country ranks third in house price increases, after Hong Kong and China. But as of June 2012, Israel was moving down on the list. When I checked the list, I saw that Turkey has third place.

The Index, which covers 55 countries, is released by the London-based real estate company Knight Frank. The data reflect the prices at which property owners would agree to sell their houses. That is, the prices reflect not transaction prices, but demanded prices. Still, they can give insight. According to the data, between June 2011 and 2012, house prices in Turkey increased by 10.5 percent. The rates for Brazil and Austria were 18.4 percent and 11 percent, respectively. Russia ranked fourth right after Turkey with 10. So, what do these mean? Let me derive some quick conclusions.

First, the global house prices in the index reflect an overall average for each country. As in any other case, the averages tell only a certain part of the story. They require further interpretation. For instance, if we compare the overall index with the house price growth in Bodrum, we would most probably be shocked to see how large the difference is. Probably, as the land is limited, demand affects price more rapidly. Compared to other countries, house prices increase more rapidly in Turkey. More precisely, house prices were reversed in 2012 due to the crisis or relevant measures in other countries, but such reversal has not yet been observed in Turkey. For instance, measures introduced by the Bank of Israel have kept house prices constant over the last year. What does this mean? It means that they have carried out a more successful operation to cool down the economy.

Second, figures show that there is no price bubble in Turkey’s housing market. Also, when interpreting the rankings, we probably have to take inflation into account. My neighbor columnist and colleague Fatih Özatay stresses frequently that Turkey has started to be inured to the inflation rate floating around a high 8 percent. I appreciate how he draws attention to this point. When the house price growth is adjusted to high inflation, we end up with a more moderate house price growth rate. If it is the presence of a price bubble in the housing sector that concerns us, it is a relief that the real price growth is more limited. I guess the absence of a strict registry of zoning areas enables a certain level of flexibility. Furthermore, cities grow vertically in the rest of the world, but horizontally in Turkey. This should have a reason and an outcome, right?

The third point is brought to you by the Union of Turkish Cement Producers (TÇMB). For the first time in the last three years, cement sales in Turkey decreased in a June. The previous drop in sales was caused by the 2008 crisis. The latest bulletin in the TÇMB website for June 2012 reveals the situation: there is still some activity in the Aegean and east Anatolian regions, but things seem dire in Marmara and central Anatolia, the core of construction activity. If the cement sale figures are an indicator of housing demand in the domestic market, we must expect house prices to loosen.

Summing all these together, there is no need to expect a serious danger stemming from the increase in house prices. Turkey’s economy has been cooling down. A little chill would be great for all of us after the summer’s heat. Cooling down is good news for the economy, though it is quite bad news for the political agenda: it reduces risks for the former, but escalates them for the latter.

This commentary was published in Radikal daily on 14.09.2012