Real Estate

Turkey announces plans to drop cap on rent increases

June 25, 2024, 12:55 PM

Tourists among houses in Bodrum. Turkey's housing costs rose 93 percent year on year, well above the general inflation rate of 75 percent

Rent cap in place for two years
Removed as of July
Housing costs up 93%

Turkey is set to remove a two-year-old cap on residential rental increases, but some analysts warn that the lifting of restrictions may spark a further rise in rents and feed into already high inflation.

On May 20 treasury minister Mehmet Şimşek announced restrictions on rental increases would be abandoned at the beginning of July, saying he did not see the need to intervene in the marketplace.

The cap, imposed in June 2022, set an upper limit of 25 percent on annual rent increases. The limit was initially planned to run for 12 months but was extended by the government for a second year in an attempt to ease inflationary pressures on households.

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However, despite the cap, housing costs including rental charges have been one of the driving forces in Turkey’s inflationary spiral, according to Türkstat, the state statistics agency.

Housing costs rose 93 percent year on year in May, Türkstat reported on June 3, well above the overall inflation rate of 75 percent. The month-on-month rate of increase was 7 percent, more than double a broader 3 percent rise in May.

A report earlier this month, issued by Eurostat, the European Commission’s statistics agency, ranked Turkey number one among European Union member and candidate countries for rent increases in the 12 months to the end of May. Eurostat said costs rose by 125 percent.

With the cap widely ignored and failing to limit rental increases, Nizameddin Aşa, the chairman of the Istanbul Real Estate Chamber, said its lifting will not have a strong inflationary effect.

“Although this move may have had some impact last year when supply was low and demand was high, currently rental property supply is good which means it may not have a major impact in the market,” Aşa told AGBI.

Although he agreed that Turkey’s cap did not curb rent rises, real estate economist Ahmet Büyükduman said he believed the cycle of increases will not slow significantly, at least in the short term.

The high cost of buying residential units – borrowing costs have risen after the central bank lifted its benchmark lending rate to a hefty 50 percent in March – will be a factor that could impact rental costs, Büyükduman said.

“With difficulties in buying properties the demand for rentals against supply should push prices up,” he said.

Further increases in rental costs could come from a government proposal – part of a planned larger overhaul of Turkey’s taxation regime – to impose a higher levy on earnings from rental properties and better police existing taxes, costs that will be passed on to tenants, Büyükduman said.

There is, however, some evidence the heat may be going out of Turkey’s rent fire. A study by Bahçeşehir University’s Economic and Social Research Centre showed an inflation-adjusted fall in rents in major cities.

Rents in Istanbul fell an average of 13 percent for the year ending May 31, although falls in Ankara, the capital, and Izmir, a major commercial centre on the Mediterranean, were less than 2 percent year on year.

It remains unclear if this trend will be maintained in the second half of the year, especially if the government imposes new taxes on rental incomes, and if those landlords who kept their rent increases within the state-imposed limits look to recoup lost earnings.