How Is The General Approach?
Transfer of ownership of immovable property to foreigners has always been an important issue for the nations. Intentions to protect national interests, together with security concerns, have led the countries to enact strict legislations and compliance considerations on this issue. For developing countries, direct foreign investment is one of the vital results of globalization, since it is an energizer for economies, and in fact, one of the methods to grow their economies as well. Turkey has been a good example in applying and benefiting from this method since the beginning of 2000's.
In accordance with the Treaty of Lausanne dated July 24, 1923 as signed among the newly established Turkey and certain World War One allied countries, e.g. Britain and France, "reciprocity" was a requirement for foreigners to acquire real property back then in Turkey. Hence the Land Registry Law1 ("Land Registry Law"), which was enacted in 1934, had the reciprocity requirement as well. The Amendment Law to the Land Registry Law2 Amendment Law"), however, briefly abolished such reciprocity requirement and eased the situation for foreigners to acquire real properties in Turkey.
Although foreign direct investment is encouraged in Turkey in lots of different sectors such as agriculture, industry and service; the scope of this article is limited to the recently arranged legislations and halting points in the field of acquisition of real property by foreigners in Turkey.
Can All Citizens Of All Countries Acquire Real Property In Turkey?
Until 2012, acquisition of real property by foreigners in Turkey was subject to the foregoing reciprocity requirement. It provided that with the reservation of reciprocity and compliance with legal restrictions, foreign real persons could acquire real property within the territory of Turkey for residence or business purposes and could establish limited real rights on real properties in Turkey. Therefore, at that time, the relevant authorities were taking into consideration the laws of the relevant country and the existing legal practice in the same, when determining whether there is an existing reciprocity between Turkey and such country.
Following the abolishment of the reciprocity requirement by the Amendment Law in 2012, the Land Registry Law entitled the Council of Ministers of Turkey to determine on the names of the countries whose citizens can acquire real property and limited real rights in Turkey. The Council of Ministers has then composed a list of such countries; regardless of existence of reciprocity between Turkey and the listed countries. The list was an extensively global one, which included, and still includes, almost all countries of the world, except for Syria and certain other countries.
What About The Restrictions?
According to the Land Registry Law, as amended by the Amendment Law, the maximum area that a foreign real person may acquire country-wide cannot exceed 30 hectares within Turkey (per person) and cannot exceed %10 of the surface area of the district at which the private property is located, either. The Amendment Law has also authorized the Council of Ministers to double up such amount for foreign real persons.
The Land Registry Law, as amended by the Amendment Law, also provides that real properties and limited real rights, as acquired through inheritance without complying with the provided size and country list limitations (in case of acquisitions of real property by foreign real persons who are not citizens of the countries listed by the Council of Ministers, and acquisitions exceeding 30 hectares) must be liquidated. The liquidation proceeds will be paid to the respective heirs, if the real property is not liquidated directly by its owner within one (1) year following the transfer of the ownership to such foreigner through inheritance.
What Are The Requirements For Foreign Investment Companies?
The Amendment Law to the Land Registry Law has introduced no change on the acquisition of real property by foreign legal persons. Under Turkish law, generally foreign legal persons can acquire real property and/or limited real rights by complying with certain legislations. Similar the former Land Registry Law, the Amendment Law provides that commercial entities established in foreign countries may freely acquire real property and limited real rights in Turkey within the scope of the Encouragement of Tourism Law or Petroleum Law or Industrial Zones Law.
The Amendment Law has extended the scope of Article 36 of the Land Registry Law on the acquisition of companies having legal personality, which are established by foreign investors in Turkey or in which foreign investors own shares. Before the legislation change, the definition of "foreign investment company" was limited to the companies established by foreign investors in Turkey or in which foreign investors owned shares. However, pursuant to the current Article 36 of the Land Registry Law, the foreign investment companies may use or acquire real property and/or limited real rights to carry out the activities under their Articles of Association if:
- 50% or more than 50% of the shares of the relevant foreign investment company are owned by (i) foreign real persons; (ii) legal persons which are subject to foreign legislations; and/or (iii) international institutions; or
- the foregoing persons are entitled to appoint or dismiss majority of the persons who manage such company.
What If The Real Property Is Located In A Military Forbidden Zone Or A Security Zone?
As the former Land Registry Law did, the Amendment Law also provides that the real property acquisitions both by foreign real/legal persons must comply with the restrictions as provided under the Law of Military Forbidden Zones and Security Zones3 ("Military Law"). As per Article 9 of the Military Law, foreign real/legal persons cannot acquire any real property within certain military forbidden zones. According to the respective article, such persons are not allowed to enter into these zones, lease real property within these zones, and/or work within the same; unless they have permission to such effect. Without prejudice to provisions of the Military Law, the Land Registry Law provides legal entities with foreign shareholders to enjoy the opportunity to acquire real properties in private security zones, military forbidden zones, military security zones and other zones determined by the Military Law. In such cases, if the property to be acquired is in a military forbidden zone, for example, the legal entity to acquire the same must obtain the prior permission of the army commandership. If the property is in a private security zone, then the legal entity must obtain the prior permission of the relevant governorship.
Meanwhile, the Regulation on Real Property Acquisitions and Limited Real Rights Acquisitions by Legal Entities and Their Affiliates in accordance with Article 36 of the Land Registry Law numbered 26444 ("Regulation on the Land Registry Law") provides that legal entities must apply to the governorship of the place where the property to be acquired is located by submitting the necessary documents and information determined by the Regulation on the Land Registry Law. The governorship then communicates with the relevant army commandership to receive the required information with respect to the property in order to decide whether it will issue its permission for such property or not.
Turkey Welcomes Investors!
Turkey has become an attractive market for investors in the real property sector. Dynamic atmosphere and the recent legislations, which have eliminated most of the obstacles, attracted many foreigners to acquire real properties in Turkey. Many investors from around the world, especially from Gulf Countries, Saudi Arabia, Iran and certain other countries are showing the signs that this trend will continue to increase in coming years.
On the other hand, foreigners, who are willing to acquire a real property in Turkey, must consider certain challenges and risks as well. For example, as stated above, when a property is to be sold to a foreign real person, the General Directorate of Land Registry and Cadaster communicates with the relevant army commandership to receive the required piece of information on such property. This practice causes loss of time to both the foreign buyer and the seller. In addition, despite the principle of equality between foreign investors and local investors under the Law on Foreign Direct Investment5, the Regulation on the Land Registry Law imposes an application process to the governorship which needs to be followed by legal entities with foreign shareholders when acquiring a real property in Turkey.
It must also be noted that foreign real persons, who have a real property in Turkey, are required to renewing the residence permit once a year is another aspect for foreign real persons. Inheritance ambiguities and liquidation risk are also a complication for them.
All of the downsides of acquiring a real property for foreigners will be discussed in our forthcoming two articles, namely "Acquisition of Real Property in Turkey: Time Consuming Processes for Foreigner Investors" to be published within next month, i.e. November 2015, and "Acquisition of Real Property in Turkey: Avoiding the Liquidation Risk for Foreigner Investors" to be published within next month, i.e. December 2015. We kindly invite you to follow our article series regarding the acquisition of real properties by foreigners in Turkey in order to be aware of all significant points on this issue.
Footnotes
1 Land Registry Law dated December 22, 1934 and numbered 2644 and published in the Official Gazette dated December 22, 1934 and numbered 2892.
2 Amendment Law to the Land Registry Law dated May 3, 2012 and numbered 6302 and published in the Official Gazette dated May 12, 2012 and numbered 28296.
3 Law of Military Forbidden Zones and Security Zones dated December 18, 1981 and numbered 2565 and published in the Official Gazette dated December 22, 1981 and numbered 17552.
4 Regulation on Real Property Acquisitions and Limited Real Rights Acquisitions by Legal Entities and Their Affiliates in accordance with Article 36 of the Land Registry Law published in the Official Gazette dated August 16, 2012 and numbered 28386
5 Law on Foreign Direct Investments dated June 5, 2003 and numbered 4875 and published in the Official Gazette dated June 17, 2003 and numbered 25141.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
