Erdi Kızılkaya is an Assistant Central Bank Specialist at the CBRT.
For views, suggestions
In Turkey, housing is considered a safe investment instrument as much as a form of shelter. One of the most important indicators for people who want to invest in houses is the length of time for return on housing investments. This indicator, the price-to-rent ratio, guides you in your decision of whether you should buy or rent a house. A long time for return indicates that it would be more profitable to rent a house whereas it would be more profitable to buy the same house if the length of time for return is short. In this blog post, the length of time for return on housing investments is calculated for Turkey as well as for three major cities in particular.
The following formula is used to calculate the length of time for return on housing investments:
Length of time for return on housing investment=Average value of the house / (12*Monthly rental value)
The average value of the house refers to the geometric average of the values of houses in the valuation reports compiled under the Hedonic House Price Index (HHPI) of the Central Bank of the Republic of Turkey (CBRT). On the other hand, the monthly rental value shows the values of “real rent paid by the tenant”, one of the CPI sub-items released by the Turkish Statistical Institute (TURKSTAT). The charts below demonstrate the change in house values and rental values used in the calculations for Turkey as a whole and for three major cities over time.
When we look at the change in house and rental values for Istanbul over time, we see that the rate of increase in the values of houses outpaced that of rents in the period until 2017. The rate of increase in the values of houses in Istanbul began decelerating after reaching a peak in early 2016 whereas the rate of increase in rents accelerated in 2016 but settled at a relatively stable level after a slight decline in 2017 (Chart 1).
The same analysis for Ankara reveals that the rate of increase in the values of houses has remained above that of rents despite a deceleration as of mid-2016 and a flat course in 2017 (Chart 2).
The change in the values of houses and rents in Izmir over time shows that the rate of increase in house values is higher than that of rents for the whole analysis period. However, there has been a significant acceleration in the rates of increase in both house values and rental values recently (Chart 3).
As for Turkey in general, the rates of increase in values of houses and rents are close to the rates for Istanbul as Istanbul has a large weight in the calculation. The rate of increase in house values in the country as a whole peaked in early 2016 and began losing pace afterwards. On the other hand, the rate of increase in rents accelerated in 2016 before slowing in early 2017, and assumed a flat trend by the year-end just like the rate of increase in house values (Chart 4).
Chart 5 demonstrates the length of time for return on housing investments for Turkey overall and for the three major cities. Accordingly, the length of time that you have to wait for the cost of a house in Turkey to be covered by rents was approximately 18 years at end-2010 whereas this time period has increased to approximately 22 years by early 2018. In other words, the amortization period for a house bought in 2018 has lengthened by 4 years compared to a house bought in 2010.
On the other hand, for the same years, the length of time for return on housing investments for Istanbul, Ankara and Izmir has been calculated as 26, 25 and 24 years, respectively. Thus, for a person to get back the money that he/she pays to buy a house in Istanbul today via renting that house, he/she has to wait 1 more year than someone buying a house in Ankara and 2 more years than someone buying a house in Izmir.
A more detailed analysis reveals that the length of time for return on housing investments in Istanbul, which was initially 17 years, began increasing at an accelerated pace in the first quarter of 2015, and started declining after reaching a peak at 27 years in the third quarter of 2016. In the case of Ankara, in 2010, the length of time for return on housing investments was longer than that in Istanbul with 18 years but has been shorter since 2015 standing at around 24 years as of the start of 2016. In Izmir, the length of time for return on housing investments, which was initially 16 years, has reached an all-time high at 24 years in the recent period, exceeding the average of Turkey.
Well, what about the length of time for return on housing investments around the world? To answer this question, we can make a comparison using the Global Property Guide data. As shown in the chart below, while Austria takes the first place with the longest time for return (more than double that of Turkey) among the countries compared, Jordan stands out as the country with the shortest time for return. Turkey ranks in the middle with 22 years, slightly below the average of countries in the chart (Chart 6).
To conclude, the length of time for return on housing investments in Turkey increased until mid-2016 after which this trend reversed in line with the downtrend in house values. On the other hand, despite following a course similar to that of Turkey overall, Istanbul still has the longest time for return on housing investments among the three major cities. With Izmir also recording a length of time for return above the average of Turkey since mid-2017, the length of time for return on housing investments in all three cities hovers above Turkey’s average.
 House values for Turkey as a whole are calculated by weighting the house values pertaining to the 26 levels in the Nomenclature of Territorial Units for Statistics-Level 2 with the number of house sales in the previous year.
 For further information, see Hülagü T., Kızılkaya E., Özbekler A.G., and Tunar P. (2016). Türkiye Konut Fiyat Endeksi’nin Kalite Değişimi Etkisinden Arındırılması: Hedonik Konut Fiyat Endeksi (Quality Adjustment in Turkish House Price Index: The Hedonic House Price Index [in Turkish], CBRT Research Notes in Economics No. 16/02.
 www.globalpropertyguide.com. Data in the guide are calculated using data pertaining to properties of 120m2 situated in the most important city of a country (national capital or financial capital).