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Turkey’s construction sector struggles to build

The EU grant will help with the repair of Turkey's infrastructure, especially in health, education and water Reuters
The EU grant will help with the repair of Turkey's infrastructure, especially in health, education and water
  • Confidence remains negative
  • 700,000 buildings damaged
  • State supports building renewal

Turkey’s construction sector is labouring under the weight of rising material and borrowing costs, fuelled by demand following last year’s devastating earthquakes, but medium-term plans for urban renewal could help to build momentum.

January’s sectoral confidence index from the Turkish Statistical Institute – Turkstat – showed the industry as the only major sector to remain in negative territory. 

According to the statistics bureau, while the sector’s confidence index edged up three points to 90.9, this was well short of the 100 mark indicating a positive outlook. 

Rising costs are also affecting the industry. Turkstat’s latest construction price index shows materials and inputs up 66.49 percent year on year, above January’s 44.20 percent production inflation rate. 

Much of this pressure stemmed from last February’s twin earthquakes in the south of the country, which left 53,000 dead and more than 700,000 buildings destroyed or damaged. 

With Turkey’s public housing commission reserving much of the industry’s capacity, private sector rebuilding has hardly started, according to Ökkeş Dalkıran, the representative of the Turkish Chamber of Civil Engineers in Kahramanmaraş, epicentre of the quakes. 

Despite some state lending support, it is necessary to borrow to rebuild and interest rates are very high, he told AGBI

“Even in an optimistic scenario, in Kahramanmaraş we will be living in a construction site for the next 10 years at least,” he said. “If Turkey suffers another major disaster that would delay reconstruction even further.” 

Fears of new disasters are behind government plans to demolish or renovate ageing constructions in high-risk areas such as Istanbul and replace them with quake-resistant buildings. 

With 60 percent of buildings in Turkey built to standards set before the 1999 Izmit quake, which killed 18,000 and prompted a revised construction code, the government is planning a wholesale upgrade of housing stocks. 

Kubilay Salihvatandaş, secretary general of the Istanbul Construction Association, says the industry is still coping with rising expenses, with labour costs jumping 100 percent or more as a result of demand from the quake zone and shortages of heavy machinery. 

Nonetheless, there are grounds for optimism. Last year’s quakes created strong political will to improve building resilience, which will translate into new projects, he told AGBI

“With the full weight of the state behind the renewal of building stock, especially in major cities, this will have a positive impact on the sector and reflect positively on the sector in the second half of the year,” Salihvatandaş said.

The state may be fully behind the urban renewal project, but it could struggle to find the estimated $49.8 billion required to replace the 600,000 housing units in Istanbul alone that have been deemed unsafe, at least in the short term. 

However, even a limited rollout of the project should strengthen the foundations of Turkey’s construction sector. 

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