Why has the construction sector been contracting for 5 years, how will the earthquake affect it?
While the Turkish Statistical Institute (TÜİK) announced that the Turkish economy grew by 5.6 percent in 2022, it drew attention to the contraction in the construction sector with the high growth in the finance and insurance sectors.
The construction sector, which was given special attention and boosted during the AKP governments, contracted by 8.4% per year in 2022. In the last quarter of 2022, the sector grew by 2 percent compared to the same quarter of the previous year.
The construction sector, which recorded annual growth in 2017 for the last time, thus contracted for the fifth consecutive year.
The construction sector, which grew by 8.9% in 2017, contracted by 1.9% in 2018, 8.6% in 2019, 5.5% in 2020 and 0.6% in 2021.
The share of the construction sector in GDP decreased to 4.8% at the end of 2022. This share, which was 4.5% in 2002, increased to 8.5% in 2016.
The “real estate activities” sector, which includes real estate buying and selling activities, grew by 4.3 percent in 2022.
On the other hand, the government, which was very weak in taking precautions before the earthquake and in search and rescue efforts after the earthquake, is trying to turn destruction into opportunity by quickly removing debris in the earthquake area and starting construction
‘THE INCREASE IN COSTS IS EFFECTIVE IN THE REDUCTION’
Professor of economics at the University of Greenwich, Dr. Cem Oyvat evaluated the data for 2022 growth and contraction in the construction sector.
Stating that TurkStat looks askance at growth data as well as inflation data, Oyvat noted that the fastest growing sector in 2022 is financial and insurance activities with 21.8 percent, “In 2022 , banking sector profits increased by 366 percent. . In the way of combating the so-called interest lobby, the opposite of the government’s rhetoric occurred, ”he said.
Pointing out that the slowdown in the construction sector is related to the increase in construction costs, Oyvat said: “Construction costs increased more than 3 times in the last 5 years and increased by 199 percent in the last 2 years “.
“Yes, on the other hand, real estate prices are also increasing, in fact, the increase in house prices in 2022 is much greater than the increase in construction costs. However, the reflection of this in construction activities comes from behind,” said Oyvat, noting that there was growth in the construction sector in the last quarter, “Production in the construction sector grew by 2 percent. percent in the fourth quarter of 2022 for the first time in 1.5 years, compared to the same period a year earlier. I believe that the growth of the construction sector will continue to depend on the increase in house prices.
Oyvat also mentioned the possible effects of the recent earthquakes in Kahramanmaraş on the construction sector and growth in 2023, saying, “Of course, the earthquake will have an increasing effect on these construction activities and GDP growth. We will see the reflections of this in 2023. However, let’s not lose a point when evaluating this data in the future. The national income data does not reflect the damage and collapse of buildings due to earthquakes. It only reflects the impact of the earthquake on that year’s production. Therefore, the growth of the construction sector and its effects on national income will certainly not reflect the actual effects of the earthquake.
GROWTH EXPECTATIONS AFTER THE EARTHQUAKE
Tahir Tellioğlu, president of the Confederation of Construction Contractors (İMKON), said that the rapid increase in the prices of construction materials and the decrease in the production of residential land were effective in the contraction experienced in the construction sector in the last years.
Tellioğlu stated that while house prices have risen rapidly, housing production has declined in recent years and housing supply has remained below demand, adding that there is a need for approximately 900,000 new homes. in Turkey, but the figure remains in the range of 650. -700 thousand.
Tellioğlu stated that a large number of new housing should be built in the earthquake region and in the provinces where the earthquake victims migrated, and that high growth in the sector will be seen in 2023 with the effect of this, and that the high construction costs, the problem of access to credit and high housing prices may limit growth.
HOUSING PRICES DOUBLED
According to Central Bank data, house prices in Turkey are averaging annual percentage rate in 2022.
increased by 167.8 percent. In Istanbul, this increase was 174.2 percent.
As of December 2022, the average price of a 100 square meter house reached TL 1,775,000 in Turkey and TL 2,788,000 in Istanbul.