The decline of the Turkish lira with the start of the last third of October 2020 opened the way for many questions about the price of the new Turkish lira and the extent to which the lira will fall, and its impact on the various economic sectors in Turkey, especially the "real estate sector".

We have dedicated this article to you to answer all the questions about the reasons for the decline of the Turkish lira and the expected impact on the price of real estate in Turkey and some aspects of real estate ownership and investment in Turkey in light of this decline in the Turkish lira. 

We have also attached our article with economic analyzes about the future of the Turkish lira 2021 so that this article would be a useful detailed report...

 

we wish you an enjoyable read, 

 

The Turkish lira has fallen to new levels

This was not the first time that we witnessed the decline of the Turkish lira, but the level that it reached is considered a record, as the Turkish lira has never fallen so much.

Table of the decline of the Turkish lira over the past years

The following is a table of the levels of the decline of the Turkish lira and its exchange rate change against the dollar and the euro over the past years:

The year

The price of the Turkish Lira against 

Dollars

Euro

2020

8.30 TL

9.70 TL

2019

5.75 TL

6.60 TL

2018

5.60 TL

6.05 TL

2017

3.85 TL

4.15 TL

2016

3.15 TL

3.35 TL

2015

2.90 TL

2.90 TL

2014

2.20 TL

2.80 TL

2013

2.00 TL

2.75 TL

2012

1.80 TL

2.30 TL

2011

1.90 TL

2.50 TL

Note: 

These numbers represent the lowest levels that the Turkish lira has reached against both the dollar and the euro. 

The Turkish lira recorded a threefold decline in its value over the course of a decade and lost 44% of its value during the year 2020 only, and despite this decline, the Turkish lira is considered one of the good, strong currencies and is characterized by its rapid growth, were it not for the fact that it is very sensitive to Turkey's foreign relations, and we will discuss that in later paragraphs.

Table of the decline of the Turkish lira over the past years

In this table, we will inform you about the change in the price of the Turkish lira against the dollar during the first ten months of 2020:

The month

The price of the Turkish Lira against the dollar

January 2020

5.85 TL

February 2020

5.95 TL

March 2020

6.50 TL

April 2020

6.98 TL

May 2020

6.72 TL

June 2020

6.85 TL

July 2020

7.00 TL

August 2020

7.35 TL

September 2020

7.70 TL

October 2020

8.30 TL

 

The World Bank, in addition to several international research centers, specialized in economics, expected at the beginning of 2018 that the dollar would exceed the barrier of 11 Turkish liras in mid-2019, but the Turkish lira proved to be very resilient despite all the challenges and reasons that led to its decline in this way, so we say that this decline The price of the Turkish lira is considered relatively safe, as it is still about 200% higher than the expectations shown by international research centers.

 

In the next paragraph, we will talk about the reasons that led to the decline of the Turkish lira to see more about the challenges of the Turkish currency in the previous and current periods and expectations for the future of the Turkish lira.

 

Reasons for the decline of the Turkish lira

The reason behind the decline in the price of the Turkish lira in this and previous periods is due to several reasons, some of which are related to the economic situation in general, some are related to emergency events such as the Corona crisis, and some are due to external political reasons.

Impact of the corona crisis

The crisis of the spread of the Coronavirus has negatively affected countries that depend on foreign investment and tourism as the main source of income for the state, such as Turkey, of course.

The Corona crisis in the past months, especially from April to July 2020, led to a significant decrease in tourism resources in Turkey, due to the suspension of foreign flights, and the preventive measures that restricted many tourism activities in Turkey, and despite the opening of the summer tourist season in Turkey, it was Unexpectedly, what caused the continued shortage of tourism resources to the state treasury.

 

Also, foreign investments fell during this period, for the same previous reasons, and if the Turkish government had not granted many privileges and transactions that could be done remotely, the situation of the Turkish lira would have been much worse than its current situation, as the decline of the Turkish lira is still resistant to the negative expectations of economic studies centers

 

Low-interest rates

Many economic analysts point out that the Turkish Central Bank’s continuation of reducing interest rates on investment deposits negatively affects the level of inflation, which is “increasingly high.” It is known that the interest rate is directly linked to the exchange rate of the local currency, which led to the decline of the Turkish lira with the Central Bank’s insistence on Turkey not to raise interest rates. 

In mid-2020, the Turkish Central Bank raised the interest rate from 8.25 to 10.25%, but refused to re-raise the interest rate in October 2020, which was followed by the recent drop in the Turkish lira against foreign currencies.

Economic analysts point out that the Turkish Central Bank has delayed using the interest rate hike to stabilize the price of the Turkish lira and improve its position, as this measure encourages internal deposits, absorbing the excess liquidity in Turkish lira, and increases the reassurance of foreign deposits in Turkish banks.

 

The global gold price hike

The rise in the price of the gold ounce globally has negatively affected all paper currencies, including the Turkish lira, as the price of an ounce increased during this year from 1545 US dollars at the beginning of 2020 to 1875 US dollars at the end of October 2020, meaning that the price of an ounce increased during this period. Duration at a rate of 21.3%.

The price of an ounce, in one of its critical periods of rising, affected by the Corona crisis, reached about $2100, which broke the barrier it had reached in the global economic crisis. The rise in the price of gold reflects the low confidence of investors in paper currencies and their dependence on gold or other investment methods to avoid being dependent on paper currency.

 

Other reasons led to the decline of the Turkish lira

The Turkish lira is very sensitive to the foreign relations between Turkey and the United States in the first place, as well as the economic and political relations with the European Union countries, the Arab Gulf states, and the Middle East. 

The nature of political action requires flexibility in one aspect and severity in another, and this has bad effects on the status of the Turkish lira, which has grown and increased in value on the principle of “zero problems” foreign political action adopted by Turkey during the first decade of the Justice and Development Party’s assumption of power in the country. 

However, "zero problems" is not considered a permanent political approach and must be interspersed with some confrontations, contradictions, and political challenges, but it remains of temporary and non-permanent effect, because the nature of political differences is always temporary, and the whole world is heading towards solving its problems and defusing crises between countries.

 

The impact of the fall of the Turkish lira on real estate

As we mentioned in the introduction to our conversation about the status of the Turkish lira, the drop in its price will undoubtedly have a certain impact on the various economic sectors, especially the real estate sector in Turkey. The truth is that the Turkish lira’s declining period is an opportunity to own real estate in Turkey for several reasons, namely:

  • Real estate prices in Turkey are not linked to the dollar, with the exception of real estate candidates for Turkish citizenship, which must be worth 250 thousand US dollars

  • The coming period will witness an increase in real estate tax prices in Turkey with the beginning of the next year 2021, and the tax is related to the dollar and the exchange rate, so it is good to take advantage of the opportunity at this time to get the property at an appropriate price and with a reduced real estate tax package.

  • The wheel of achievements in infrastructure in Turkey naturally resumed after Corona, and these projects will add positive value to real estate in Turkey, especially megaprojects, such as the medical city in Basaksehir / Istanbul

  • The elements of real estate ownership and investment in Turkey still exist and are not related to the exchange rates of the local currency. The need for housing, shelter, an office for work, a store, or a piece of land are all permanent needs that are not interrupted by an economic problem, In the countries with the most collapse of local currencies, we find that the real estate ownership markets are operating normally, so what about an economic country like Turkey that is classified as one of the most attractive countries for tourists and foreign residents?

  • Real estate in Turkey is not classified as a consumer item to be affected by the change in the price of the Turkish lira, but rather it is a constant source of investment and one of the important investment doors for foreign and local investors.

  • Not raising the interest rate may push a good percentage of bank deposit holders in Turkey to think about the best investment alternative for them, which is definitely real estate.

 

Read also: Deposits in Turkish banks or real estate investment in Turkey!

 

  • The demand for real estate in Turkey represents a rising number, as about 3 million homes are sold in Turkey annually, of which at least 40,000 properties are sold to foreigners, and even during the spread of Corona this year, 1.1 million homes were sold in Turkey during the first nine months of 2020. Among them, 26,000 properties are for foreigners

  • Not raising the interest rate contributes positively to the increase in mortgages and thus the continued recovery of the real estate sector in Turkey with the presence of encouraging sources of financing for real estate ownership

  • Also, the real estate ownership laws in Turkey are very encouraging and more reformable and can receive amendments that further stimulate real estate investment in Turkey, especially by foreigners.

  • Real estate in Turkey benefits from the problems experienced by the global economic sectors, especially with regard to the global oil and gold prices, as well as the exchange rate of the Turkish lira, which will be among the things that will reflect positively on the real estate reality

 

Read also: The impact of falling oil prices on real estate in Turkey

The future of the Turkish lira 2021

 

The future of the Turkish lira 2021

In the coming year, the Turkish lira faces many challenges to stop its depreciation and stabilize its price, if the following are taken into account:

  • The rise in wages of workers in Turkey in a manner that suits the new exchange rates of the Turkish lira against foreign currencies

  • The Turkish Central Bank may intervene to raise the interest rate at the beginning of 2021, which helps to stabilize the price of the Turkish lira and increase its strength

  • The Central Bank of Turkey has many options to help strengthen the position of the Turkish lira, such as: reducing the mandatory foreign currency reserve, which currently stands at 30%, which allows banks in Turkey to freely dispose of a larger margin of foreign currency reserves, in addition to the possibility of withdrawing more liquidity from cash The Turkish government offered large sums of foreign currency to help stabilize the Turkish lira.

  • Positive foreign trade indicators in Turkey contribute to the appreciation of the Turkish lira.

  • Turkey will participate in the meeting of the twenty most powerful economic countries in the world at the end of November 2020 in the Saudi capital, "Riyadh", which will give the Turkish economy a positive push forward.

  • Finally, most of the external reasons for the decline of the Turkish lira are temporary, and Turkey enjoys good relations that contribute to rebalancing the exchange rate of the Turkish lira well.

 It is clear from all of the above that the decline of the Turkish lira is importantly related to the political and economic factors, and Turkey's maintenance of stable political relations, in addition to offering remedial solutions to economic problems, which ensures the increase in the stability and strength of the Turkish lira.