Merrill Turns ‘Negative’ on Turkey Real Estate, Stocks Slide

BofA Merrill Lynch turned “negative” on Turkish real estate, saying economic growth and a surge in interest rates and inflation are not supportive of an expansion in the industry.

Merrill cut developers Sinpas Gayrimenkul Yatirim Ortakligi AS (SNGYO) and Emlak Konut Gayrimenkul Yatirim Ortakligi AS (EKGYO) to “neutral,” analyst Ecem Nalbantgil said in an e-mailed report today from London. The price estimate for Sinpas was reduced to 1.44 liras from 2.6 liras and the estimate for Emlak to 2.7 liras from 3.2 liras.

“We are most negative on residential developers, followed by retail,” Nalbantgil said. There will be ``downward pressure on prices but upward on construction costs as lighter demand will limit price increases while higher inflation pulls up costs. Watch out for a cash flow squeeze.”

Sinpas fell as much as 2.6 percent to 1.12 liras in Istanbul trading. The share slid 1.7 percent at 10:51 a.m. Emlak Konut declined 1.8 percent to 2.13 liras.

Zero Growth

Merrill has a zero percent economic growth forecast for Turkey next year and there’s been a 500 basis points spike in mortgage rates, hurting demand for housing, Nalbantgil said.

In the residential market “we expect 2012 unit sales to be 40 percent lower than in 2011 on average,” she said. “Given the 18 percent rise in mortgage rates we see affordability for the mass market being pushed out to 2015/16.”

Sinpas and Torunlar Gayrimenkul Yatirim Ortakligi AS (TRGYO) are expected to “become cash flow negative from operations,” Nalbantgil said. “While Emlak’s business model shields it from such problems to some extent, it could face pressure on revenue generation.”

The price estimate for Torunlar, which Merrill rates as “underperform,” was lowered to 4.84 liras from 7 liras, she said.

In retail “tenants will gain bargaining power over landlords due to the risk of vacancies as a result of the slowdown in the economy but also because of the big increase in supply that will come through by the end of 2013,” Nalbantgil said.

Merrill recommended investors buy Is Gayrimenkul Yatirim Ortakligi AS (ISGYO), which is focused on office space. The price estimate for the company was cut to 1.6 liras from 2.3 liras.

To contact the reporter on this story: Mark Bentley in Istanbul at

To contact the editor responsible for this story: Riad Hamade at

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