Those observing Istanbul’s construction boom will not have been surprised by last week’s currency collapse – it’s all based on debt
The crash of the Turkish lira last week after two years of steady decline spooked global markets – but anyone looking at Istanbul’s skyline would have been far from surprised. Everywhere you look in the city, evidence of a debt-fuelled construction boom abounds: new skyscrapers frame the horizon, huge shopping malls dot the streets and among several megaprojects is a new airport, set to be the world’s largest.
Funding for this construction frenzy has been at the heart of Turkey’s economy, accounting for up to 20% of the country’s GDP growth in recent years, and employing around two million people. In a parallel to the 2008 financial crash, the boom was funded by low-interest loans and ballooning debt. Property developers funded their buildings with cheap loans in foreign currencies – and will be struck particularly hard by the lira’s collapse, as those loans grow harder to repay every day. According to government statistics, at the end of 2016 nearly 90% of the credit in Turkish real estate companies came from loans in foreign currencies.