The Association of Construction Material Manufacturers (İMSAD) has published its December Sector Report.
According to the report, the construction sector is expected to grow by 5% in 2025, following an 8% growth in 2024.
The report states: “In 2024, the construction sector shows an average growth of 8.0%. The high growth in the construction sector is mainly driven by activities in earthquake zones, public investments in infrastructure and social facilities, local government investments, and urban transformation activities. Despite tight policies and limitations on domestic demand implemented in 2024, the construction sector still achieved high growth.
In 2025, tight monetary policies will continue to be applied throughout the year to combat inflation. In particular, tight monetary policy will be effective. However, despite this, the construction sector is expected to grow by an average of 5.0% in 2025. The high growth in the construction sector in 2024 has not been reflected in the construction materials industry production. Stocks have mostly been used. However, the demand generated by the growth in the construction sector in 2025 is likely to positively impact industrial production as well. A limited recovery is expected in the renovation market.
Considering the potential impacts of economic policies and the 2025 budget and annual program, the construction sector is expected to grow by 5% in 2025. Investments in infrastructure in earthquake zones will contribute 2 percentage points to construction sector growth. Urban transformation activities will contribute 1.5-2.0 percentage points. Other public investments will contribute 1.0 percentage point. Private sector activities, particularly in the second half of the year, are expected to contribute 0.5-1.0 percentage point. Based on these expectations, construction sector growth between 5-6% is likely in 2025. Developments in Syria could also positively impact the construction sector.
Construction Cost Increase Slows Down As of October 2024, construction costs have increased by 37.94% year-on-year. The rate of increase in construction costs continues to slow down. Material costs have risen by 30.67%, while labor costs have risen by 55.62%. The slowdown in cost increases to 25% could stimulate new construction starts.
Construction Sector Confidence Index Rose by 0.9 Points in December Following an increase in November, the construction sector confidence index rose again in December, reaching 85.6 points. After a long downward trend in the confidence index, the downward trend halted in November, and the index reversed upwards in December. The pressure on the construction sector due to tightening policies continues. However, it is expected that the tightening measures could begin to ease, including interest rate cuts. Therefore, the downward trend in the confidence index reversed to some extent 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 current level of construction work decreased by 1.8 points. In November, the construction work level increased by 4.0 points. After the increase in November, the level of current construction work decreased again in December. With the onset of winter, the high season has also ended. The current work level will continue to be influenced by seasonality, expectations, as well as economic policy applications, earthquake zone, and urban transformation activities. The current work index will likely remain volatile.
New Construction Orders Decreased by 0.9 Points in December New construction orders were generally stagnant during the summer months but increased by 1.1 points in November. In the last month of autumn, new orders recovered from their lowest level of the year. However, in December, new construction orders decreased again by 0.9 points. Economic policy applications and their effects are the main factors determining new orders. With the end of the high season, new orders will also weaken. It is expected that a permanent recovery in new orders will take time.
Housing Sales Increased by 63.6% in November 2024 In November 2024, 153,014 housing units were sold. Housing sales in November 2024 increased by 63.6% compared to the same month last year. November recorded the second-highest monthly housing sales of the year. The wealth effect created by the high returns of savings instruments has been a determining factor in this increase. From January to November 2024, housing sales increased by 16.4% compared to the first eleven months of the previous year, reaching 1,265,388 units. Housing sales are supported by more favorable housing loan interest rates offered by banks. The expectation that housing prices will rise has strengthened demand for housing.
Second-Hand Housing Sales Increased by 64.6% in November 2024 In Turkey, 103,740 second-hand homes were sold in November 2024. Second-hand housing sales increased by 64.6% compared to November of the previous year. November recorded the second-highest monthly second-hand housing sales of the year. From January to November 2024, second-hand housing sales increased by 13.0% compared to the same period last year, reaching 857,556 units. High first-hand housing sales are also expected in the last month of 2024. The desire of those purchasing first-hand homes to sell their existing homes will also boost second-hand housing sales.
Construction Sector and Financing Challenges In 2024, the construction sector felt the effects of tightening policies, especially on the financing side. In the third and fourth quarters of the year, tightening monetary policies were applied decisively. Credit limits, high loan interest rates, and reduced liquidity continued to limit financing opportunities for the construction sector. The assessments made in the monthly contractor confidence index survey conducted by the Turkish Statistical Institute also reveal the developments on the demand side throughout the year. Insufficient demand increased in the last quarter of the year, reaching its highest level since the beginning of 2022. High financing costs remain a major factor limiting activities in the construction sector. Financing problems remained high in the last quarter of the year, and the effects of tightening policies were increasingly visible. Labor shortages are less of a problem, while material and equipment shortages are decreasing. Demand levels and financial issues were the main determinants in the construction sector in 2024. Restrictive conditions are expected to persist in the first quarter of 2025 as well. Demand for the construction materials industry will also be limited in the first quarter due to these conditions. With the start of the targeted reduction in inflation, the Central Bank of Turkey began cutting interest rates by 250 basis points in December. It is expected that interest rate cuts by the central bank and market rates will continue in the new year. As a result of the interest rate cuts, the difficulties on the demand and financing sides will decrease, and this will become more evident in the second quarter of the year.”
