Turkey has been a favorite country in recent years among foreign investors from both Europe and the Middle East. Underlying Turkey's attractiveness is lower prices compared to other countries and a high tourism potential. Eager to take advantage of this potential, foreign investors have been vying to buy hotels, holiday villages, etc. in Turkey for investment purposes as well as dwellings and land in an ever-increasing demand. The fact that the property sold to foreigners tends to be located mostly in areas with intensive tourism activity such as Istanbul, Antalya, Fethiye, Bodrum and Marmaris seems to bear out the aforementioned proposition. The legislation applicable to the sale of property to foreigners remains inadequate to satisfy the rising demand despite the amendments made. Many interested foreigners are denied the purchase of property in Turkey because of the restrictions in the title deed law and other legislation. The new law includes fewer restrictions, making the purchase of property in Turkey for investment purposes more attractive to foreigners. This article will briefly address the legislative amendments made from time to time followed by an overall assessment of the law amending the title deed law.
The legislation applicable to the sale of property in Turkey to foreign natural and legal persons was shaped after the Title Deed Law No: 2644 that was put into effect on 29 December 1934. Numerous amendments to this law were attempted from the date of its taking effect to the year 2012 with some being rescinded by the Constitutional Court and others going into effect.
A. THE STATUS OF FOREIGN NATIONALS BEFORE THE TITLE DEED LAW
1. FIRST LEGISLATION
The Title Deed Law passed in 1934 established reciprocality as the basic principle in the sale of property to foreigners. This meant that the same procedures – favorable or unfavorable – would be applied to the citizens of a foreign country in Turkey as those that were applied to Turkish citizens in that particular country. In other words, Turkish nationals had to be allowed to conduct title deed transactions in a foreign country in order for the citizens of that country to be allowed to do the same title deed transactions in Turkey.
This principle of reciprocality was not without certain restrictions. The first was a 30-hectare limit on the size of property a foreign natural person was authorized to purchase. Purchases of property larger than 30 hectares required permission from the Council of Ministers. Another restriction was that foreigners were not allowed to buy property in villages, security zones, military restricted areas, and strategic locations.
The first lawmaking initiatives to reduce the reciprocality-based restrictions were made in the 1980s. These legislative rearrangements, however, were only short-lived and were eventually declared void by the Constitutional Court ( 1984/14E - 1985/7K and 1986/18E - 1986/24K ).
Although the title deed law passed in 1934 granted foreign natural persons the right, albeit limited, to acquire property, such right was not extended to legal entities; and it was not until later when several special laws were passed (Law No: 6224 on Incentivizing Foreign Capital; Law No: 2634 on Incentivizing Tourism; Law No. 6326 on Petroleum; and Law No: 4737 on Industrial Zones) that foreign legal entities became eligible to acquire property with the caveat that they satisfied certain conditions.
2. ATTEMPTS AT AMENDMENT IN THE 2000S
The legislative changes that were made in the 1980s, only to be rescinded later, were brought before Parliament in the 2000s. The new amendments adopted by the legislative body were subsequently cancelled by the Constitutional Court – sometimes in whole and sometimes in part.
a) LAW No: 4916:
Thefirst attempt at amendment, through Law No: 4916 which was published in the Official Gazette on 19 July 2003, was as follows:
Natural persons of foreign nationality and business companies with legal personality established in foreign countries in compliance with the laws of their respective countries may acquire property within the borders of the Republic of Turkey provided that the practice is reciprocal and that legal restrictions are observed. The implementation of the principle of reciprocality will be based on the citizens and business companies of the Republic of Turkey being granted the same rights in the acquisition of property as are granted by a foreign state to its own citizens or to business companies established in foreign countries in compliance with the laws of their respective countries.
The permission of the Council of Ministers will be required for the acquisition of more than thirty hectares of property by natural persons of foreign nationality and business companies with legal personality established in foreign countries in compliance with the laws of their respective countries. This provision shall be waived in the case of property acquired by way of legal inheritance. The permission of the Council of Ministers will also be required for the acquisition of more than thirty hectares of property by natural persons of foreign nationality by way of acts associated with death which fall outside the realm of legal inheritance. Should this permission be denied, any surplus amounts will be liquidated and converted into a monetary value.
The condition of reciprocality shall be waived in the event that limited real rights are established on the property in favor of natural persons of foreign nationality and business companies with legal personality established in foreign countries in compliance with the laws of their respective countries
The Council of Ministers is authorized to determine the locations where this article will not be applied in view of public benefit and the security of the country.
To briefly mention the radical changes introduced by this article, foreign fictitious persons were granted the right to acquire property like foreign natural persons. Also, authorization was granted to establish limited real rights on property in favor of foreign natural and fictitious persons without the condition of reciprocality. In another important change, the condition of reciprocality was lifted for property acquired through inheritance.
Furthermore, Article 38 of the same law rescinded Article 87 of Law No: 442 on Villages, thereby granting foreigners the right to acquire property within the boundaries of villages.
This legislation was ruled void by the Constitutional Court as were the others that preceded it (2003/70E - 2005/14K ).
b) LAW No: 5444:
Thesecond attempt at amendment was made through Law No: 5444 published in the Official Gazette on 7 January 2006 which said,
Natural persons of foreign nationality may acquire, on the basis of reciprocality and within legal restrictions, property allocated and registered to be used for a work place or a dwelling in the application redevelopment plans or the local redevelopment plans in order to use them for these specific purposes. The same conditions shall be required in the limited establishment of real rights. The total surface area of the property and the limited real rights of an independent and continuous nature a natural person of foreign nationality may acquire throughout Turkey may not be larger than two and a half hectares. The Council of Ministers is authorized to increase the mentioned surface area up to thirty hectares on the conditions set forth in this article.
Business companies with legal personality established in foreign countries in compliance with the laws of their respective home countries may acquire ownership of property and limited real rights on property only in accordance with the provisions of special laws.
Entities other than natural persons of foreign nationality and business companies with legal personality established in foreign countries in compliance with the laws of their respective home countries may not acquire property in Turkey and may not have limited real rights established in their favor.
The requirements and restrictions mentioned in the first paragraph shall not be applied to property acquired by way of legal inheritance by the citizens of states with which the Republic of Turkey exercises reciprocality. The requirements and restrictions mentioned in the foregoing paragraphs shall be applied to acts associated with death. The property and limited real rights acquired by way of legal inheritance by the citizens of the states with which the Republic of Turkey does not exercise reciprocality will be liquidated upon completion of transfer procedures.
The de jure and de facto situation will serve as the basis in determining whether reciprocality exists. In the application of this principle to the nationals of the countries where individuals are not entitled to land ownership, the deciding factor will be whether the foreign state in question grants Turkish citizens the same rights of property acquisition as it grants its own citizens.
The most important change this law introduced was the entitlement of natural persons of foreign nationality to acquire a maximum of 2.5 hectares of property or real rights throughout Turkey only in areas that had been allocated for work places or dwellings in the redevelopment plans. The same legal rearrangement also authorized the Council of Ministers to increase this quota up to 30 hectares.
This legislation shared the same fate as the others and parts of it were cancelled by the Constitutional Court. The parts that got cancelled were the powers conferred upon the Council of Ministers (2006/35E - 2007/48K ).
c) LAW No: 5782:
Thelaws that followed the foregoing legislation regularly got cancelled by the Constitutional Court because none heeded the Court's reasons for cancellation until the drafting of Law No: 5782 that was published in the 15 July 2008 issue of the Official Gazette which introduced the following :
Natural persons of foreign nationality have been granted the right to acquire property and limited real rights of an independent and continuous nature in up to ten percent of the total surface area of the land inside the boundaries of the application redevelopment plans or the local redevelopment plans on a central county and county basis.
The Council of Ministers is authorized to specify different percentages, not to be greater than the above, in view of the importance of central counties and counties with respect to infrastructure, economy, energy, environment, culture, agriculture, and security.
3. NEW LAW
Yet another addition to the string of amendments to the title deed law that began in 1980 was the law that went into effect in 2012.The articles that brought changes to the provisions of the title deed law read,
Natural persons of foreign nationality that are the citizens of the countries designated by the Council of Ministers may acquire property and limited real rights in Turkey in the circumstances justified by Turkey's bilateral relations and national interests provided that legal restrictions are observed. The total surface area of the property and limited real rights may not exceed ten percent of the surface area of the county and thirty hectares per person throughout Turkey. The Council of Ministers is authorized to increase up to twofold the amount acquirable per person.
Business companies with legal personality established in foreign countries in compliance with the laws of their respective countries may only acquire property and limited real rights in accordance with the provisions of special laws. Business companies other than these may not acquire property and may not have limited real rights established in their favor. The restrictions in this article shall be waived in pledging property in favor of these business companies and natural persons of foreign nationality.
Where dictated by Turkey's national interests, the Council of Ministers may specify, limit, suspend in part or in whole, or prohibit in terms of countries, individuals, geographical regions, time period, number, percentage, type, quality, surface area, and quantity the acquisition of property and limited real rights in Turkey by natural persons of foreign nationality and business companies with legal personality established in foreign countries in compliance with the laws of their respective countries.
Natural persons of foreign nationality and business companies with legal personality established in foreign countries in compliance with the laws of their respective countries are required to submit to the approval of the Ministry concerned within two years the design project for the development of the non-built-up property they have purchased. The project approved by the concerned Ministry with an indication of the times of launch and completion will be dispatched to the title deed office having jurisdiction over the property in order to be entered in the declarations section of the title deed record. The Ministry concerned will monitor the progress of the approved project to ensure compliance with the schedule.
Companies established in Turkey with legal personality, in which natural persons of foreign nationality with the exception of those described in Article 28 of Law No: 5901 on Turkish Citizenship dated 29 May 2009, fictitious persons incorporated in accordance with the laws of foreign countries, and international organizations hold fifty percent or more of the shares or have the power to assign or dismiss the majority of the persons having the right of management, may acquire ownership of property and may acquire and exercise limited real rights in order to conduct the business activities indicated in their articles of association.
This law abandoned the principle of reciprocality; and the rights of natural persons of foreign nationality described in the regulations in effect were broadened to allow them to acquire property and limited real rights in up to ten percent of the total surface area of the land delineated in the application redevelopment plans or the local redevelopment plans on the basis of central counties and counties. Furthermore, the boundaries of a county's surface area were set as the basis in calculating the ten-percent portion instead of the boundaries of the redevelopment plan. Terrain features such as mountains, lakes, etc. were taken into account in calculating the surface area.
B. THE STATUS OF FOREIGNERS WITH RESPECT TO OTHER LEGISLATION
Special provisions on the acquisition of property and limited real rights by fictitious persons are to be found also in the Law on Incentivizing Tourism, the Law on Petroleum, and the Law on Industrial Zones in addition to the Title Deed Law:
1) Law on Incentivizing Tourism: Article 8 authorizes the Council of Ministers to waive the constraints on foreign nationals in Law No: 442 on Villages and Law No: 2644 on Title Deeds in the acquisition of property in the culture and tourism conservation and development zones and touristic centers.
2) Law on Petroleum: Article 12 authorizes the Council of Ministers to grant permission to foreign fictitious persons to acquire property strictly for the purposes of their specific business activity.
- Law on Industrial Zones: Article 4 authorizes the Council of Ministers to decide, following an evaluation to be made upon an application for acquisition, on the allocation of the areas deemed appropriate by the Council of Ministers as a distinct investment location upon which to realize a distinct industrial investment to domestic and/or foreign natural or fictitious persons who will realize the investment.
C. WHAT TO WATCH OUT FOR WHEN BUYING PROPERTY
It is common knowledge that individuals and organizations of foreign nationality encounter unknowns in many areas when buying property in Turkey some of which may stem from the different legal regulations in a foreign country, peculiar traditions, different practices regarding property, the unfamiliar approach of people, the risk of getting swindled in a strange land, the differences in the finance markets, and the uncertainties in the quality of construction. What should be done in these circumstances is to carefully contemplate the unknowns and to obtain assistance from experienced and proven experts.
Some basic courses of action to be followed against these unknowns are as follows:
1- Examination of title deed records: Official documents as they may be, title deeds should always be carefully examined. The annotations (hypothecary, etc.) in the title deed records should be given extra attention. The annotations inserted for public benefit should be scrutinized. The holders of the deed and their proxies must be carefully investigated to ascertain their genuineness and rule out the likelihood of fraud.
2- Redevelopment and inhabitability status: One of the crucial facts to be wary of when buying property in Turkey is the redevelopment and inhabitability status. If the property is a tract of land, it must be found out how much and what type of development is allowed in it. If the property is a finished building, it must be checked whether an inhabitability license has been issued or, if not, whether the building qualifies for one.
3- Surrounding development: New construction, dubbed urban renewal, is in full swing in a great many areas across Turkey. Property prices have been soaring due to rising population, ceaseless migration to the cities, rapid development of the economy, rapid development of touristic activities, urban renewal operations, transition to modern farming methods and a host of other factors. The prospective buyer should find out about the existing and future development around their target property, paying attention to what kind of dwellings or office buildings are under construction or planned.
4- Location of property: This seemingly simple matter may sometimes prove to be the most problematic of all. The location of a piece of land or a building may be found on a map and one may often pay a visit to the spot to see how much to their liking the property is. There may, however, be facts about a property and its location that are not available in any records or may easily be hidden – known only to the neighbors or to those who have closely witnessed the property's past. An earlier building may have collapsed on the same site. The building may have been burned down and repaired. It may have sustained earthquake damage which may have been covered up. The area may be a landslide zone. It may be seeing floods in some years. A mine or quarry in the vicinity may be a source of hazard. Something may be wrong with the water. Discrepancies of this nature can only be discovered by questioning the local residents and property buyers should definitely consider getting this kind of help.
5- Financing: Loan offers for the purchase of property in are in abundant supply in Turkey from both domestic and international sources. Buyers should check whether the property they are after is eligible for a loan.
6- Quality of construction: Buildings may legally be constructed in several qualities in Turkey. The construction industry is quite advanced and construction materials are available in all types and qualities. Inspection of building construction is not adequate in practice although the laws do offer adequate provisions for inspection. Therefore, Turkish citizens prefer to buy homes from reputable contractors with a track record for reliability – especially in view of the fact that the country is located in an earthquake zone. Investigating these matters is pretty difficult for a foreign buyer; so the best they can do is to have the quality and reliability of the builder checked by friends or locals they know and trust. Particular attention must be paid to whether the building site is on a fault line and whether the structure can stand up to the seismic stresses that can be expected in its location. If these checks cannot be performed in a lay capacity or if doubts persist, professional help should be sought from an architect or civil engineer to examine the building's strength.
7- Second-hand purchases: Prospective buyers that are looking to purchase a second-hand building must absolutely investigate the former owner(s) and find out why they sold the property. It must be thoroughly checked whether the property is under foreclosure and whether there is any damage or malfunction in its construction. It must not be forgotten that owners are often in a hurry to sell off property with which something important is wrong.
8- Social composition of neighborhood: Turkey is a cosmopolitan country in terms of its societal fabric. In addition to the multitude of social and cultural groups that make up the population of the Republic of Turkey, various groups of foreigners are clustered in a number of locations that are in favor with them. It must be kept in mind that each group has a culture and a life style of its own and that there are people in each group who want their neighbors to practice a style of living identical or similar to theirs. Buyers with such preferences must conduct their research accordingly or have someone else do it on their behalf.
9- Ease of resale: Every buyer who acquires property, regardless of whether they are locals or foreigners, must bear in mind that they may have to sell it some day. Some buy property simply for investment, hoping to make a profit on the resale. In any case, one must look to buy property that will not lose value over time – and will hopefully get more valuable. A foreigner cannot conduct this kind of research on their own. The resale potential of property may only be evaluated by a reliable professional in the real estate business and prospective buyers would be well-advised to contract a trustworthy and proven person or organization for this purpose.
10- Construction warranty: Buyers should by all means learn the relevant legal arrangements in the Republic of Turkey including the scope and term of the warranty builders are legally obligated to furnish. If the property is purchased from a corporate builder, a warranty contract would naturally exist.
11- Professional help: Clearly, it would be extremely difficult, if not altogether impossible, for a foreign buyer to handle all of the aforementioned issues and possibly more on their own. Therefore, buyers of foreign nationality must get help from a local professional. This help should be with investigating and inspecting the property as explained above rather than with finding one. In other words, who finds the property and who inspects it should be different persons. The professional help should also include the inspection of the contracts to be signed between the buyer and the seller and the contracts with the builders. The person from whom the foreign buyer receives help should think and investigate like a local buyer and should protect the foreign buyer's interests without fail. In seeking this kind of professional help, foreign buyers must pay attention to who the professionals are and whom they have worked with, examining their references and preferring individuals or firms that have been tested by and collaborated with internationally recognized organizations. Engagement in both the legal profession and the property business would be an asset for the person or firm providing professional help.
There is an economic aspect to the legislation as well as legal. Many potential investors interested in investing in Turkey, mainly from the European Union and the Middle East countries, have been informed of the new legislation even before it entered into effect and are carefully watching the situation. Property sales in the amount of $5 to $10 billion are expected once the legislation becomes effective. Such an enormous economic magnitude warrants a warning to investors that risk-laden investments made in the wrong place through the agency of the wrong people may well end up in hefty losses instead of profits. Therefore, investments should be made through solid and reliable connections or agents when exercising the rights the law grants foreigners.