Turkish construction sector sounds alarm bells over plunging lira

Erdinç Çelikkan - ANKARA

DHA photo

A representative of Turkey’s construction sector has sounded the alarm bell after a steep fall in the value of the Turkish Lira significantly increased costs.

“The construction sector is on the verge of bankruptcy,” said Tahir Tellioğlu, the chair of the Assembly of Construction Contractors in the Union of Chambers and Commodity Exchanges of Turkey (TOBB).

Speaking to daily Hürriyet, Tellioğlu said the sector would take a serious blow “if the government does not take necessary steps.” 

“The Turkish Lira has lost 35 percent of its value over the past three months. Contractors who won public tenders, however, had profit margins of only 25 percent, and even that was at the maximum extremity,” he said, adding that market demand for housing had “completely halted.”

According to Tellioğlu, the average construction contractor had previously sold a home that cost 80 liras to build for 100 liras. “Now, the cost has risen to 110 Turkish Liras, which means that sales are bringing losses,” he added.

Proposals for cut in VAT, compensation for price difference

The government can and should intervene, Tellioğlu claimed, offering two main proposals. 

“First of all, the government should issue a decree on price difference, which can guarantee the making up of losses due to the devaluation of the lira. Secondly, the ratio of Value Added Tax (VAT) could be reduced from its current level of 18 percent,” he added.

For the state, such steps would mean a loss in tax revenue, Tellioğlu admitted, but he argued that this would be worth the public cost. 

“This sector employs 2.3 million people directly. If the administration fails to take precautions for fear of losing 500 million Turkish Liras in tax revenue, then bankruptcies will follow and the sector will shrink by 25 percent,” he said. 

“We are not begging. We’ll see who will survive and who will die in six months,” Tellioğlu added.

The lira, having already hit record lows, rose beyond the psychological barrier of 3 to the dollar for the first time ever last week, amid a combination of political uncertainty and rising militant violence in the southeast.

Meanwhile, Turkish consumer confidence fell to its lowest in more than six years in August, official data showed on Aug. 21.