TCA: Construction Sector Under Cost Pressure at Home, Geopolitical Risk Pressure Abroad

The Turkish Contractors Association (TCA) published its Construction Sector Analysis Report for the third quarter of 2026. In the report, titled “New Fault Lines of the Global Economy,” it was noted that the construction sector contracted by 1.9 percent in the second quarter of the year, interrupting its growth trend of recent years. The report highlighted that high financing and labor costs along with weakening private sector investments continued to put pressure on the sector, while public investments and reconstruction activities in the earthquake zone continued to support the sector. It was stated that in overseas contracting services, geopolitical uncertainties and global financing conditions limited new project undertakings.

The Turkish Contractors Association (TCA) shared with the public the third-quarter 2026 issue of its Construction Sector Analysis Report, which is closely followed by economic circles and the sector. The report assessed domestic economic developments, key indicators related to the construction sector, and the performance of overseas contracting services, addressing the current outlook of the sector and expectations for the coming period.

Weakness in housing demand limits growth

According to the report, while the Turkish economy grew by 2.3 percent in the second quarter of 2026, the construction sector contracted by 1.9 percent in the same period. Thus, the growth trend of the sector, which had outperformed the overall economy in recent years, was interrupted.

It was assessed that high financing costs, tight credit conditions, and the cautious approach in private sector investments were decisive factors in the sector's contraction. While reconstruction activities in the earthquake zone and public investments continued to support the sector, it was noted that weakness in housing demand limited growth performance.

In the second quarter of 2026, according to the chain-linked volume index, total fixed capital investments increased by 0.6 percent, while construction investments decreased by 0.9 percent. The sector's share in total employment stood at 6.8 percent.

The Construction Cost Index announced by TurkStat showed a monthly increase of 2.04 percent and an annual increase of 29.59 percent in August 2026. Material costs rose by 2.73 percent monthly and 28.72 percent annually, while labor costs increased by 0.82 percent and 31.20 percent, respectively. In the same period, the building construction cost index rose by 28.94 percent annually, while the construction cost index for non-building structures increased by 31.68 percent. The data indicated that the annual rise in labor costs in particular, along with financing expenses, continued to put pressure on the sector's profitability.

Recovery in production indicators, monthly decline in turnover

According to TurkStat data, the construction sector turnover index rose by 19.2 percent year-on-year in August but declined by 3.7 percent month-on-month. In the same period, the total turnover index for industry, construction, trade, and services sectors increased by 31.8 percent year-on-year and 3 percent month-on-month.

The construction production index rose by 2.3 percent year-on-year and 4 percent month-on-month in August. Among sub-sectors, building construction production decreased by 0.9 percent year-on-year, while construction of non-building structures increased by 21.8 percent and specialized construction activities increased by 0.1 percent. The decline in the turnover index despite the monthly recovery in production volume showed that revenues and production activities in the sector were moving in different directions.

Confidence and expectations in the sector remain weak

The Construction Confidence Index declined by 0.2 percent month-on-month in September, reaching a level of 83. The index remaining below the threshold value of 100 revealed that the pessimistic outlook regarding current activities and expectations for the future period persisted in the sector.

While the current level of registered orders received rose by 1.9 percent to 80.4, expectations regarding the total number of employees for the next three-month period declined by 2.1 percent to 85.5.

The Construction Materials Industry Composite Index announced by Turkey İMSAD also fell by 1.1 points to 72 in August. The decline recorded in all of the activity, confidence, and expectation sub-indices showed that the cautious outlook in the sector was also reflected in the construction materials industry.

The decline in the secondhand segment was decisive in housing sales

Total housing sales across Türkiye decreased by 9.3 percent year-on-year in September, reaching 142,390 units. First-hand housing sales rose by 3.9 percent to 51,519 units, while secondhand sales fell by 15.3 percent to 90,871 units. Thus, the share of first-hand housing in total sales was 36.2 percent, while the share of secondhand housing was 63.8 percent.

In the January-September period, total housing sales decreased by 7.2 percent to 1,092,919 units. The decline of 0.6 percent in first-hand sales and 10 percent in secondhand sales revealed that the secondhand segment was the determining factor in the annual decline in the housing market.

Financing pressure in the housing market continues

In September, mortgaged housing sales rose by 5.1 percent year-on-year to 23,397 units, while other sales decreased by 11.6 percent to 118,993 units. The share of mortgaged sales in total sales remained at 16.4 percent.

In the January-September period, mortgaged sales increased by 24.7 percent to reach 212,210 units, while other sales declined by 12.5 percent. Although the increase in mortgaged sales pointed to a revival in housing demand through credit channels, the fact that its share in total sales remained limited showed that difficulties in financing conditions persisted. High housing prices and pressures on household purchasing power were also among the factors limiting demand.

Real decline in housing prices continues

The Housing Price Index announced by the Central Bank of the Republic of Türkiye (CBRT) rose by 1.2 percent month-on-month in September, reaching a level of 239.4. The index increased by 22.3 percent year-on-year in nominal terms, while it decreased by 5.7 percent in real terms. Thus, despite the continued nominal increase in housing prices, the decline in inflation-adjusted prices persisted.

In September, housing prices rose by 2 percent month-on-month in İstanbul, 0.1 percent in Ankara, and 1 percent in İzmir. Annual increase rates were 26.8 percent in İstanbul, 22 percent in Ankara, and 21 percent in İzmir.

The activity seen in construction permits was not reflected to the same extent in completed buildings

In the first quarter of 2026, the number of buildings granted construction permits increased by 19.6 percent year-on-year, the number of dwelling units increased by 37 percent, and total floor area increased by 26.1 percent. In the same period, the number of buildings granted occupancy permits increased by 4.8 percent, the number of dwelling units by 10.1 percent, and total floor area by 3.5 percent.

While the double-digit increases seen in construction permits pointed to an expansion in activities aimed at new building production, the more limited rise in occupancy permits revealed that the activity at the permit stage was not reflected to the same extent in completed buildings.

Loss of momentum in overseas contracting services continues

The report noted that the Turkish contracting sector undertook a total of 97 projects worth 4.9 billion USD abroad in the first nine months of 2026. It was pointed out that overseas project undertakings continued their weak trend due to global financing conditions and geopolitical developments.

The number of countries where business was undertaken abroad rose to 139 with the addition of Canada. In the first three quarters of the year, the country where the most projects were undertaken was Saudi Arabia with 1.1 billion USD. Romania ranked second with 670 million USD, while Libya ranked third with 635.8 million USD.

It was stated that uncertainties in key markets, particularly in the Middle East, created pressure on investment decisions and project financing. Nevertheless, it was emphasized that the Turkish construction sector maintained its strong position in international markets. The fact that Türkiye ranked second with 49 firms, after China, in the Engineering News-Record (ENR) magazine's 2026 “Top 250 International Contractors” list was regarded as an indicator of the sector's global competitiveness.