Erdogan's hopes for re-election dashed by wrong policy

Foreign home sales in Turkey, mainly to Iranians, Iraqis, Russians and Afghans, reached an all-time high of 6,630 last month, official data shows, as a sharp fall in the lira made Turkish property more attractive to foreign buyers.

Under a new regulation adopted last month by Erdogan's government, the record sales of homes to foreigners have dropped by 30 per cent to 45 per cent, prompting some prospective buyers to walk away.

The sales have contributed to a broader rise in living costs for Turks that has weighed on Mr Erdogan's opinion polls. Housing-related inflation was more than 20 per cent last month, reflecting soaring rents, valuations and mortgage rates.

The government adopted the citizenship-for-homes scheme in 2017. A year later, it cut the minimum price to $250,000, from $1 million, to attract foreign buyers and help alleviate the currency crisis.

Inflation in Turkey rose for a third month to an annual 19.25 per cent in August, but many Turks say that price increases for food and rent have outpaced that.

Apart from food and rent, Turks are feeling the sting of higher prices for electricity and building materials. The government is facing decreased support for Mr Erdogan, who is seeking re-election in less than two years.

The jump in Turkish inflation in August pushed the benchmark interest rate adjusted for price growth into negative territory for the first time since October, dashing Mr Erdogan’s hopes for an early cut in borrowing costs.

Investors say policy makers are falling in line with Erdogan's call for lower interest rates while ignoring the risks to the outlook. Republican People’s party leader Kemal Kilicdaroglu reiterated a previous warning to the central bank that it must act in the public interest. 

Erdogan, whose view that high interest rates lead to inflation runs counter to established economic orthodoxy, has increasingly meddled in monetary policy as he consolidates his control over the Turkish state. He has pushed for rate cuts even at the cost of soaring inflation and turmoil in the financial markets.