We are invading Istanbul again,” the real estate agent said enthusiastically as she ticked off the selling points of Turkey’s most ambitious development extravaganza to date: Maslak 1453.
According to research by Mustafa Sonmez, author of numerous books on the Turkish economy, Mr. Erdogan has favored the construction and real estate sectors at the expense of important export sectors.
“It’s a shame,” said Mr. Sonmez, who calculates that construction spending is now about 9 percent of the overall economy, a level that the International Monetary Fund has found to be associated with problems in other countries. “We have used all this free money to build houses and feed the domestic market.”
To date, the local market had been remarkably resilient, overcoming a global rise in interest rates caused by last year’s “taper tantrum” surrounding the Federal Reserve’s decision to begin cutting back on stimulus, and the anti-government, anti-development street protests at Taksim Square here in Istanbul.
But in the first three months of the year, unit sales for new apartments were down about 60 percent compared to the same period last year, according to Emlak Konut, the country’s largest real estate investment company.
Moreover, Mr. Eren said, the inventory of unsold housing units has risen to 1.5 million, compared to levels close to zero several years ago, a clear sign that the slowing economy and higher interest rates are cutting into demand.
The potential for a real estate crash highlights the role of the relatively obscure Housing Development Administration, commonly known as Toki, in fueling the boom.
Traditionally a bureaucratic backwater with a mandate to push for more affordable homes, Toki emerged as a housing power center when its bylaws were changed in January 2004 to bring it under the direct control of Mr. Erdogan less than a year after he was elected. Under his sponsorship, Toki amassed choice properties at little or no cost, auctioned them off to developers and took a cut of the profits.
According to Mr. Sonmez, Toki has been particularly aggressive in backing high-end projects undertaken by developers with ties to Mr. Erdogan. They include Ali Agaoglu, the billionaire businessman behind Maslak 1453, who late last year was one of a number of business executives, bankers and politicians questioned by the police as part of a broad corruption investigation. Also questioned were two Toki board members.