Turkey: Brand New Regulation on Real Estate Acquisitions in Turkey by Foreign-Owned Turkish Companies

For almost a decade, real estate has undoubtedly been one of the hottest foreign investment sectors in Turkey. Needless to say that the enactment of liberal laws/regulations, which allow investors to acquire real estates much more conveniently than before, has played a major role in the latter.

In Turkey, a body of laws composed of (i) Land Registry Law1, (ii) Foreign Direct Investment Law2 and (iii) Military Forbidden Zones and Security Zones Law3 should collectively be taken into account as regards any real estate acquisition in which foreign individuals or legal entities are directly or indirectly involved. Besides, the regulations issued by the relevant ministries in accordance with the afore-mentioned laws should be considered. The partial annulment of some of the said laws by the Turkish Constitutional Court and frequent amendments to the relevant regulations have unfortunately caused the matter of "real estate acquisition by foreigners in Turkey" to be quite complicated.

Before continuing to read this article, one should remember that a foreign-related real estate acquisition in Turkey may be realized in 3 (three) different manners:

  1. The acquiring party may be a foreign individual (who does not have Turkish nationality),
  2. The acquiring party may be a foreign legal entity (which is incorporated outside of Turkey subject to the applicable foreign law), or
  3. The acquiring party may be a Turkish company (incorporated in Turkey in accordance with Turkish law) whose shares are partly or wholly owned by foreign individuals and/or legal entities ("Foreign-owned Company").

While the first two possibilities mentioned above are called "direct acquisitions", the third one is an "indirect acquisition" because although the acquiring party is a Turkish company, the foreign nationality of its shareholders makes the transaction "foreign-related" and thus subject to approval by official bodies. In order to not cause any confusion to its readers, this article will only discuss indirect acquisitions which highly interest foreign investors.

The essential provision regarding indirect real estate acquisitions in Turkey is Article 36 of Land Registry Law. It stipulates that Turkish companies4 which are established or subsequently acquired by foreign investors may acquire (i) the ownership of real estates or (ii) rights in rem on real estates in order to carry out their business activities set forth in their Articles of Association. Details of the acquisition process are not indicated because Article 36, in its last paragraph, makes reference to a regulation to be issued by the relevant ministries considering the body of laws mentioned in the second paragraph of this article. The said regulation used to be "Regulation on Acquisition of Real Estate by Foreign-Owned Companies" ("the Regulation"). It was published in the Official Gazette No. 27052 dated 12 November 2008. Since it entered into force, the Regulation has been subject to justifiable criticism because it lacked the necessary mechanisms for speeding up acquisition processes. Considering such shortcomings of the Regulation, the Ministry of Public Works has just issued a new regulation governing the matter: "Regulation on Acquisition of Real Estate Ownership and Limited Rights in Rem by Foreign-Owned Companies" ("the New Regulation"). The New Regulation, which expressly abrogates the Regulation, was published in the Official Gazette No. 27721 dated 6 October 2010 and entered into force on the same day.

Below are listed the main features of the New Regulation and its superiorities over its predecessor;

  • "Foreign investor", which comprises foreign individuals, foreign legal entities and also international organizations, has been defined in the New Regulation. One should bear in mind that the acquiring party (in real estate acquisitions subject to the New Regulation) is not a foreign investor, but a Turkish company partly or wholly owned by a foreign investor. In this article, such companies are called "foreign-owned companies".
  • All applications for real estate acquisitions are directly made to the governorship of the city where the real estate to be acquired is located. Foreign-owned companies do not have to deal with any official authority other than the governorship. The governorship is responsible for coordinating the applications with other official authorities such as the Armed Forces and police departments, which saves applicants from the burden of traveling back and forth between different authorities.
  • The documents required for applications are exhaustively listed. Article 4 of the New Regulation particularly stipulates that applicants cannot be requested to submit any additional document.
  • The New Regulation's feature which would be most embraced by foreign investors is probably the "accelerative mechanism" preventing applications from dragging on. Within the framework of its application coordination, the governorship holds correspondences with other authorities in order for them to declare their views on the real estate acquisition subject to application. At the time when the Regulation used to be in force, the non-responsiveness of a specific authority was delaying applications for months. The New Regulation has permanently solved this problem as follows: In the case where a certain authority does not reply the governorship in 15 (fifteen) days, the governorship shall go ahead with the application assuming that the said authority has approved it.
  • Article 3 of the New Regulation has introduced a new 10% threshold as regards publicly-owned companies. Accordingly, the New Regulation shall not be applied as long as less than 10% of the share capital of a public company (having real estates in Turkey) is owned by foreign investors. If this provision had not been foreseen in the New Regulation, public companies would have been obliged to make constant applications for real estate acquisition because the sale of their one single share to a foreign investor would trigger the implementation of the New Regulation. On the other hand, considering that share certificates (representing shares) are exchanged at the Istanbul Stock Exchange on instant basis, it would be literally impossible to determine whether the 10% threshold is exceeded at a certain time5.
  • In accordance with the New Regulation, acquisition by a foreign-owned company of a mortgage right (or another limited right in rem) is very simplified. In the case of mortgage, there is no need to apply to the governorship. The foreign-owned company directly applies to the relevant land registry together with a few documents. This provision is vital for foreign-owned companies (e.g. banks) seeking proper security in return for loans extended.
  • In case an application is approved, the governorship issues a petition addressed to the land registry where the real estate is located and states that the foreign-owned company is permitted to acquire the real estate right subject to application. Upon request, such petition is delivered by hand to the foreign-owned company, which further speeds up the process.
  • Finally, the possibility for a foreign investor to totally circumvent the New Regulation is also worth to be mentioned in this article. Let us illustrate it by way of an example: A, which is a foreign company, establishes B, a Turkish company in Turkey. Subsequently, B establishes C, again a Turkish company in Turkey. In other words, C is indirectly owned by A. In this scenario, although any real estate acquisition by B is subject to the New Regulation (because it is a foreign-owned company), real estate acquisitions by C are not subject to any limitation because the owner of C is B which is a Turkish company. There is nothing in the New Regulation preventing foreign investors from using the above-described structure, which may be defined as a "dramatic insufficiency" of the New Regulation.


1. Published in the Official Gazette dated 29 December 1934 and numbered 2892.

2. Published in the Official Gazette dated 17 June 2003 and numbered 25141.

3. Published in the Official Gazette dated 22 December 1981 and numbered 17552.

4. A Turkish company means a company incorporated in Turkey in accordance with Turkish law.

5. Accordingly, we are of the view that the implementation of the said threshold for publicly-traded shares is simply impracticable. The threshold would only make sense in case a public company's non-public shares are sold to a foreign investor.

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.

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