Turkey: New Regulations Ginger up Real Property Acquisitions by Foreigners
→ Burcu Ozdamar
As of 18 May 2012, reciprocity for foreigners who want to acquire real property in Turkey has been abolished.
Requirements for acquisition of real property by foreigners
The Turkish Constitution (TC) states, “Everyone has the right to own and inherit property. These rights may be limited by law only in view of the public interest. The exercise of the right to property shall not contravene the public interest.”
Accordingly, some restrictions on the acquisitions of real property and limited rights in rem over real property by foreigners are regulated under Articles 35 and 36 of Act No. 2644 (TDA), subject to compliance with the legal restrictions.
Recently, new regulations on acquisitions by foreign investors have doubled the number of acquisitions in Turkey.
Past regulations restricting foreigners from investing
In the recent past, due to the reciprocity requirement (abolished through new regulations), the right to acquire real property in Turkey was granted only to those buyers who belonged to countries that had granted the same privilege to Turkish citizens. This was a strong barrier to the acquisition of real property by foreigners in Turkey. Many investors had to cancel their investment plans due to this restrictive regulation.
The main restrictions and limitations were as follows.
Reciprocity requirement between Turkey and the respective country
Foreign real persons (FRP) can acquire real estate in Turkey that is registered for residential or business purposes in development plans with the reservation of reciprocity and compliance with national laws regarding military and special security areas. Those who cannot meet the reciprocity requirement may not acquire real property or be granted limited rights in rem in Turkey.
Limitation in area
The total area of real property that a FRP can acquire may not exceed 10% of the area within the borders of development plans in each city, and the total area of the real property may not exceed 25,000 m2 in total for the whole country.
The new regulations attract foreign investors
Amendment No. 6302 (Amendment) has amended the TDA as of 3 May 2012, with the aim to reduce the restrictions on acquisition of real property in Turkey by foreigners.
The Amendment sets restrictions on the real property acquisition rights of foreigners by categorising foreign persons.
As of the Amendment’s effective date, the total area of real property and limited rights over real property that an FRP can acquire throughout the country may not exceed 300,000 m2. Specifically, this area may not exceed 10% of the country where the respective property is located. But the Council of Ministers (CoM) may increase this size up to 600,000 m2 if it is in the public interest. CoM determines which countries’ citizens are allowed to acquire real property in accordance with the limitations under the law.
Foreign legal entities
Under the Amendment, foreign legal entities (entities incorporated and operating under the laws of foreign countries) may also acquire real property and limited rights in rem over real property in accordance with provisions of certain laws, such as Act No. 2634 on Tourism Encouragement and Act No. 4737 on Industrial Zones. Other companies not subject to certain laws may not acquire real property or obtain limited rights in rem over real property, except for establishing mortgages in their favour.
Foreign capital companies (FCC)
FCC (foreign shareholders own at least 50% of shares or have the authority to assign or dismiss the majority of managers) established in Turkey may freely acquire and use real properties to conduct business activities listed in their Articles of Association.
FCC wishing to acquire real property or limited rights in rem in Turkey must apply to the governorship where the real property is located, by presenting the required documents for their approval. To grant the approval, the Governorship must determine whether the real property is in a military forbidden zone or a military security zone. If so, the Governorship will not approve the acquisition.
There is no need to obtain approval from the Governorship to establish mortgages in favour of foreign capital companies.
The changes to the regulations will significantly increase acquisitions by foreign investors who are planning to expand their business in a country open for development. Because of these new regulations, Turkey, with its strategic position, has the opportunity to become a key area of interest.