IMSID: Construction Sector Could Grow by 5% in 2025
Foreks - The Association of Construction Material Producers (İMSAD) has published its December Sector Report. According to the report, the construction sector is expected to grow by 8% in 2024 and by 5% in 2025. The report stated: "The construction sector is showing an average growth of 8.0% in 2024. The high growth achieved in the construction sector is significantly influenced by activities in earthquake zones, public investments in infrastructure and social amenities, investments by local governments, and urban transformation activities. Despite the tightening measures and limitations on domestic demand applied in 2024, the construction sector continues to achieve high growth."
"In 2025, tightening policies aimed at combating inflation will continue throughout the year. Particularly, a strict monetary policy will be implemented. Nonetheless, the construction sector is expected to achieve an average growth of 5.0% in 2025 as well. The high growth in the construction sector has not yet reflected on the production of construction materials in 2024, as largely stocks have been utilized. However, the demand arising from the growth in the construction sector in 2025 is likely to positively affect industrial production. A limited recovery is anticipated in the renovation market."
"When evaluating the possible effects of the economic policies implemented alongside the 2025 budget and annual program, it is expected that the construction sector can show a 5% growth in 2025. Infrastructure investments in earthquake zones will contribute 2 percentage points to the growth of the construction sector. Urban transformation activities will provide a contribution of 1.5-2.0 percentage points. Other public investments will contribute 1.0 percentage point, while the private sector's activities, particularly expected to pick up in the second half of the year, will add 0.5-1.0 percentage points. Within these expectations, a growth rate of 5-6% in the construction sector in 2025 is possible. The developments in Syria may also positively impact the construction sector."
Construction Cost Increase Slowing Down
As of October 2024, the annual increase in construction costs was recorded at 37.94%. The rise in construction costs continues to slow down. The annual increase in material costs was 30.67%, while labor costs rose by 55.62%. With the reduction of annual cost increases to 25%, new construction starts may become more active.
Construction Sector Confidence Index Increased by 0.9 Points in December
Following the increase in November, the construction sector confidence index rose in December as well, reaching 85.6 points. The long-term downward trend in the construction sector confidence index paused in November and reversed upward in December. The pressures on the construction sector persist due to the tightening policies implemented in the economy. However, it is believed that the tightening measures may start to loosen, including potential interest rate cuts in the upcoming period. Therefore, although the declining trend in the confidence index was limited, it turned around in December. A limited recovery in the construction sector confidence index is likely in the first quarter of the new year.
Current Construction Work Level Decreased by 1.8 Points in December
In December, the level of current construction work decreased by 1.8 points. In November, the level had increased by 4.0 points. Following the increase in November, the current construction work level decreased again in December. With the onset of winter, the high season has also come to an end. This year, winter conditions are expected to be challenging. The current work levels will continue to be determined by seasonality, expectations, and economic policy implementations, as well as activities in earthquake zones and urban transformation. The current work index will remain volatile.
New Construction Order Level Decreased by 0.9 Points in December
New business orders remained generally stagnant during the summer months, experiencing an increase of 1.1 points in November. Thus, the new orders in the last month of autumn reversed from the lowest level of the year. In December, new construction orders again saw a decline of 0.9 points. The economic policy implementations and their effects primarily determine the status of new business orders. With the end of the high season, new orders are expected to weaken. A permanent recovery in new orders is anticipated to take time.
Housing Sales Increased by 63.6% in November 2024
In November 2024, a total of 153,014 housing sales were recorded. Housing sales in November 2024 increased by 63.6% compared to the same month last year. November witnessed the second highest monthly housing sales of the year. The high returns on savings instruments have been critical in this increase. From January to November 2024, housing sales increased by 16.4% compared to the same period last year, reaching 1,265,388 units. The more favorable mortgage rates offered by banks have supported housing sales. The expectation of rising housing prices has also strengthened housing demand.
Second-Hand Housing Sales Increased by 64.6% in November 2024
In November 2024, a total of 103,740 second-hand housing sales were recorded across Turkey. Second-hand housing sales increased by 64.6% compared to November of the previous year. November saw the second highest monthly second-hand housing sales of the year. From January to November 2024, second-hand housing sales increased by 13% year-on-year, totaling 857,556 units. High first-hand housing sales are also expected in the last month of 2024. The intention of those seeking to buy first-hand housing to sell their current properties will increase second-hand housing sales as well.
Throughout 2024, the construction sector has felt the effects of the financing side of tightening policies more acutely. Especially in the third and fourth quarters, the tightening policy on the monetary side has continued to be firmly applied. Limits on credit growth, high loan interest rates, and reduced liquidity have continued to diminish financing opportunities in the construction sector. The evaluations made in the confidence index survey conducted monthly by the Turkish Statistical Institute with contractors reveal the developments on the demand side throughout the year. Insufficient demand has risen significantly in the last quarter. Since the beginning of 2022, demand insufficiency has reached its highest level. High financing costs continue to emerge as a significant constraint on construction sector activities. Financing problems remained high in the last quarter as well. The effects of tightening policies are becoming increasingly evident. Labor shortages present a general problem but have a more limited impact. Material and equipment shortages are diminishing. In 2024, the level of demand and financial issues have been decisive in the construction sector. Restrictive conditions are likely to continue into the first quarter of 2025 as well. Consequently, the demand for the construction materials industry is also expected to be limited in the first quarter. With the anticipated decline in inflation, the Central Bank of the Republic of Turkey (TCMB) initiated a rate cut of 250 basis points in December. Expectations persist for further interest rate reductions in the new year for both the central bank and market rates. The alleviation of demand and financing challenges due to interest rate cuts will become more apparent in the second quarter of the year.