GDP (Gross Domestic Production) is the most essential criterion that indicates the size of an economy. It displays the nominal value of all the goods and services produced within a year in an economy. The GDP data is announced quarterly and shows economic performance.
The GDP has four fundamental components: consumption expenditures, private sector investment expenditure, public investment expenditures and net exports. Property development is included in the private sector investment expenditure.
GNP (Gross National Production) is calculated by adding the revenue from abroad to the GDP. The National Income data is then calculated by dividing the National Income by the total population.
During the periods when the economy grows rapidly, the amount of disposable income per capita would also increase.
The yearly increase rate of the Real GNP provides us with the growth rate. The difference between the Growth Rate and the Population Increase Rate is called the Net Growth Rate. It would make more sense to look into the Net Growth Rate particularly in countries such as Turkey where the population increases rapidly. For instance, if the population has increased by a 2% where the growth rate indicates 6%, then the net growth rate is calculated as 4%.
Purchasing real estate is dependent on which sectors in society have a strong income. If the income distribution is balanced more people will buy real estate, if the there is an in balance then there is less demand for real estate.
Gini co-efficient measures the economic inequality, measuring income distribution. If income is fairly distributed within a society, the Gini co-efficient is 0. If income is allocated to 1 entity, then the Gini co-efficient is 1. It can, therefore, be concluded that the more the Gini co-efficient is closer to the value 1, the higher the inequality of income.
The Gini co-efficient value in Turkey is around 0,40. This is a chronic problem in Turkey. The richest 20% of the population share 55% of the total income whereas the poorest 20% have 5%. Therefore people who have purchasing power to buy real estate are limited to the top 20%.
Completed household budget questionnaires concluded that on average 6% of the household income is allotted to property. This low percentage is further proof that real estate investment is limited to a small portion of the society.
TUIK reports how household income is spent. An average 23% - 25% is spent on food and beverages, whereas 27% – 29% is spent on properties and rental expenses. The forecast is that in time people will have more spendable income, will purchase their own property and rent less.
Employment and the labour market affect the demand for properties. If the economic growth decreases, unemployment will follow and this will mean that the demand for real estate will decrease. Unemployment figures quoted do not include those who are not actively looking for work, housewives and those who choose not to work so will be much higher. It is also worth noting that the young population unemployment rate is 25% when the unemployment rate is 10% is significant in terms of real estate demand in the future.
The indicator which the real estate investors follow closely and which actually determines the real levels of the macroeconomic data is the Inflation rate. Inflation is the continuous increase of the prices in general. Therefore, temporary fluctuations in prices cannot be defined as inflation. The reason for why inflation is a notable problem for the economy is that it erodes purchasing power.
Because inflation devaluates currency, it increases the demand by the general population into investing in physical commodities such as gold and real estate. We can follow TUIK via monthly data announcements. PPI and CPI should be followed as well as the core inflation in which the monthly or seasonal products, whole food and energy are not included.
There are other real indicators where a real estate investor can keep track on the developments in the economy. One of them is the establishment of new companies and closing of the existing ones. TUIK provides data such as the closing, capital, scope and type of companies.
One indication regarding whether the real economy is healthy or not is the data on protested bills, based on the data gathered from the bans and announced by the TCMB (Central Bank of Turkey).
TUIK also announces the Building Licences and the Building Use Permits which it compiles from municipalities. This data should be followed so as to keep tabs on the direction of the real estate industry.
The Manufacturing Industry capacity usage rates and the Industry Production index data announced by TUI and represents the industrial enterprises by separating the state and private sector. The capacity usage rate indicates whether the economy is vibrant.
The Industry Production Index attributes the production amount on the basis of mining and manufacturing industry as well as the electric, gas and water sectors. If the industrial production decreases, the GDP would decrease as well. Owing to the fact that the production industry comprises 20% of the GDP, it is a significant indicator when it comes to economic growth estimations. A decrease in the production would lead to a decrease in the demand for real estate both by individuals and companies.
The real estate market is closely linked with financial markets as well as with the real economy. Investment tools such as stock certificates, bills of exchange, bonds and assets constitutes an alternative to the investment on real estate. Therefore, the real estate investors should follow the developments in the financial markets very closely. The interest, which is a profit from monetary investment, is an alternative to the rent and lease, which are the profit from real estate. The investor would prefer to invest on assets that have high profit and low risk. Within the financial system, there are state and private sector banks, insurance companies, development and investment banks, individual retirement firms, social security institutions, mutual partnership and investment funds.
The investors should also follow the movements of hot money very closely.
We are aware that the domestic demand for real estate is sensitive towards the interest rates. The demand for real estate is predominantly domestic. Despite the fact that property sales are not generally an issue for foreign trade the source of financing for long term mortgage loans are the syndication loans from foreign banks. The domestic banks present these long term loans they get from foreign sources to the real estate buyers in the form of long term mortgage loans.
The low savings ratio in Turkey has resulted in the private sector taking out loans to invest in real estate. This situation results in a negative influence on the primary deficit financing.
The economic growth is slower during the peak loan period due to high interest rates and limited investments are. Real estate investments are no exceptions.
Balance of payments is another data set that is tracked by investors. Balance of payments represents the transactions implemented in foreign countries by the domestically settled persons and institutions and it consists of current accounts and financial accounts.
Current accounts, balance of foreign trade, balance of investment and current transfers consist of sub-categories. Balance of foreign trade includes import and export figures and it is derived from the difference between export, which is a positive number and import, which is a negative number. Foreign trade deficit means that the country has excessive foreign currency encumbrance and that this issue needs to be financed somehow. Therefore, it is considerably significant in terms of predicting the direction of the exchange rates.
The Balance of services consist of sub-categories including transportation, tourism revenues, construction services, financial services and official services.
This displays how current accounts balance deficit is financed. Capital account exhibits the total sum of the assets brought by those who immigrate to the country. In this account, we can see the movable and immovable investments, which the countries mutually deposit.
Finance account exhibits the direct abroad investments made by those who live domestically and the direct investments they make domestically in the form of capital and real estate. In the very end of the capital and finance accounts are the Net Errors and Omissions. This category contains the inflow and outflow of foreign currency which cannot be categorized anywhere and of which the source is unknown. The shuttle trade foreign currency and the informal real estate market are examples of this.
The real value of the money is one of the indicators that should be monitored by a real estate investor. For this purpose, the TCMB real effective exchange rate is calculated. The real exchange rate is calculated by disassociating the nominal exchange rate from the inflation via price index. PPI and CPI are used for this purpose. The purpose for calculating the real exchange rate is to measure the power of Turkish Lira in the foreign trade operations.
In the real effective exchange rate, the year 1995 is recognized as 100. If the index is higher than 100, the Turkish Lira is strong and if it is lower, it means that the Turkish Lira is losing value. If there is a high volume of foreign capital inflow into the country, the Turkish Lira will gain value and the real exchange rate index will increase. It is obvious that when the Turkish Lira gains value, it would decrease the real estate demand of the foreign investor. An extremely strong Lira is not a positive element for the foreign investor.
Investors do not only monitor the monetary policy regarding the economy but fiscal policy also occupies a significant place in the economical evaluation. The purpose of the fiscal policy is to provide price stability and economic growth and the main means for that is the Budget. Fiscal policy varies depending on the budget deficit or surplus. If the tax revenue does not meet the expenses, a need for loaning would arise. The first option to increase the revenue is to increase the tax revenues but overtaxing could cause economic constriction and prevent new investments.
Opting for loaning in order to close budget deficit would affect the market interest rates. The investors monitor the primary balance numbers very closely. The primary balance displays the difference between the primary expenditures and the total revenue and it is significant in terms of the decrease in the debt stock.
The TCMB expectation survey is implemented by experts twice a month and it aims to determine the expectations on topics such as interest, exchange rates, growth rate and current deficit. The expectation survey acts like a fore indicator and it is only an estimation study.
The economic tendency survey aims to reflect the condition in which the real sector exists. It a survey implemented with the purpose of determining the condition of the industry. Answers provided to questions such as production, employment, export, import and investment act as fore indicators for the investors.
The consumer confidence index is also measured the same way. If the index is lower than 100, it can be interpreted as the consumers being pessimistic and if the index is higher than 100, then the consumers are optimistic.
The increasing and the dynamic young population is a positive sign for a property investor. The young population seeking new homes, will create new opportunities in the real estate market.