Türkiye’s Real Estate Market Is Rebalancing: High Interest Rates, Cost Pressures and Weaker Demand

Türkiye’s real estate and construction sectors entered the second half of 2026 under mounting pressure from high financing costs, weakening domestic demand and persistently rising construction costs. The latest data point to a significant year-on-year slowdown, particularly in building construction and residential property sales, suggesting that the market will become increasingly sensitive to the trajectory of interest rates and shifts in investor preferences in the period ahead.

Data from the Turkish Statistical Institute (TURKSTAT) Construction Production Index for July 2026 clearly illustrate the slowdown across the sector. Construction output declined by 4.7% year-on-year in July, while building construction fell by 8.0%, a particularly relevant indicator for the residential property market. Specialised construction activities also declined by 4.9% year-on-year. In contrast, civil engineering construction increased by 14%.

Another noteworthy aspect of the data is the divergence between short- and longer-term trends. Despite the 4.7% year-on-year decline, total construction output increased by 1.1% compared with the previous month. Building construction also recorded a monthly increase of 0.9%. The current environment should therefore be viewed not as a complete standstill in the sector, but rather as a period of market rebalancing in which activity remains below last year’s levels while showing limited signs of month-on-month recovery.

Annual Decline in Residential Property Sales Becomes More Pronounced

A similar pattern is evident on the demand side of Türkiye’s real estate market.

According to TURKSTAT, 127,410 residential properties were sold across Türkiye in August 2026, representing a 14.7% decline year-on-year. Total residential sales during the January–August period reached 950,529 units, 6.8% below the corresponding period of the previous year.

The contraction was particularly pronounced in the secondary market. Sales of newly built homes declined by 4.5% year-on-year in August to 44,378 units, while second-hand residential property sales fell by 19.4% to 83,032 units. Over the January–August period, second-hand sales were down 9.2% compared with the previous year.

These figures indicate that pressure is affecting not only the development and sale of new housing projects but also the turnover of Türkiye’s existing residential property stock.

Interest Rates Remain One of the Market’s Key Drivers

Financing costs remain one of the principal factors behind the slowdown in the real estate market.

According to the September Monetary Policy Committee summary published by the Central Bank of the Republic of Türkiye (CBRT), housing loan interest rates stood at 41.9% in the week of 4 September, while Turkish lira deposit rates were 44.4% during the same period.

This interest-rate environment places real estate investors under pressure from two directions. On the one hand, the cost of financing a property purchase through borrowing remains high. On the other, elevated returns on Turkish lira deposits provide investors with an alternative to allocating capital to real estate.

As a result, the investment decision is no longer based solely on the question of whether property prices will rise. Investors increasingly need to consider whether rental yields and potential capital appreciation can compete with the returns available from alternative financial instruments.

However, the sales data reveal an important divergence. Although total residential property sales declined by 14.7% year-on-year in August, mortgage-financed sales increased by 7.2% to 22,131 units. During the January–August period, mortgage-financed transactions were 27.6% higher than a year earlier, while other types of residential sales declined by 12.7%.

The current market therefore cannot be explained simply by saying that high interest rates have brought mortgage-financed purchases to a halt. Financing conditions remain challenging, but the figures also indicate a degree of recovery in mortgage transactions, partly reflecting the low comparison base of the previous year.

For Developers, Weak Demand Is Only Part of the Problem: Costs Continue to Rise

On the supply side, the sector faces a different but equally significant challenge.

According to TURKSTAT data for July 2026, the Construction Cost Index increased by 28.33% year-on-year. Material costs rose by 27.13%, while labour costs increased by 30.51%. The annual increase in the Building Construction Cost Index reached 28.37%.

This creates a critical dilemma for the sector:

Production costs continue to rise while demand and transaction volumes remain under pressure.

Developers therefore have limited scope to stimulate demand simply through price reductions. Pushing sales prices below levels justified by construction costs erodes project profitability, while passing the full increase in costs on to buyers further exacerbates housing affordability constraints.

Against this backdrop, location, product positioning, pricing strategy and financial strength are likely to become increasingly important factors in future property development decisions.

Construction Sector Confidence Remains Below the Threshold Level

September indicators also suggest that market participants remain cautious.

According to TURKSTAT, Türkiye’s Construction Confidence Index declined by 0.2% month-on-month in September 2026 to 83.0. An index reading below 100 indicates a pessimistic outlook. By contrast, the overall Economic Confidence Index increased by 0.7% in September to 101.3.

This divergence suggests that while confidence indicators for the broader economy have shown modest improvement, sentiment in the construction sector has yet to recover to the same extent.

A New Real Estate Environment: The “Every Property Goes Up” Assumption Is Weakening

The emerging picture suggests that Türkiye’s real estate market is moving away from a broadly uniform appreciation cycle towards a considerably more selective market structure.

High interest rates, pressure on real household incomes, attractive returns offered by financial instruments and elevated construction costs are simultaneously shaping market conditions. As a result, factors such as location, rental yield, liquidity, project quality, developer credibility and realistic pricing are becoming increasingly important in investors’ purchasing decisions.

For investors with sufficient cash reserves, however, the current environment may also create a different type of opportunity. During periods of weaker demand, greater seller flexibility can strengthen buyers’ negotiating position, particularly for high-quality assets that are correctly priced or available below prevailing market value.

The current period should therefore not be interpreted solely as a market contraction. It may also represent a redistribution of bargaining power between buyers and sellers.

Interest Rates Will Be Critical in Determining the Market’s Direction

Financing conditions will remain one of the most important variables shaping the market in the period ahead.

A meaningful decline in housing finance costs could bring a portion of postponed residential demand back into the market. Conversely, if high interest rates persist for an extended period, investment-driven property demand will continue to compete with deposits and other financial instruments for investor capital.

At the same time, persistently high construction costs could constrain the pace of new housing supply. If demand subsequently strengthens, today’s slowdown in new project development could create supply pressures in certain locations in the future.

Ultimately, the defining feature of Türkiye’s real estate market in the second half of 2026 is likely to be “selectivity” rather than price movements alone. Investors with strong financing capacity, appropriately priced properties in the right locations and projects supported by sustainable cost structures may be able to outperform the broader market.

In the period ahead, success in real estate will therefore depend not simply on rising property values, but on the ability to identify the right asset, at the right price, at the right time.