Article by Paul WOUTERS, Maria CELEBI and Emin ŞANLI
Due to a loophole in Turkish legislation, for a period since July 2005 until quite recently, it was impossible for foreigners to acquire real estate in Turkey. A long expected law voted on December 28, 2005 finally redressed that situation.
Generally, the laws regarding acquisition of "real property" by foreigners were laid down by Article 35 of the Land Registry Act (in force since 1934): Subject to severe restrictions, foreign natural persons could acquire real property in Turkey.
EU-prospects and growing foreign investment in Turkey required liberalization of those rules and subsequently, the National Assembly abrogated the limitations mentioned above on July 3rd, 2003.
Consequently, under obligations of international reciprocity and complying with certain legal restrictions, foreign natural persons and foreign commercial corporations established as a legal entity could acquire real property within the Republic of Turkey provided that it did not exceed 30 hectares without the permission of the Council of Ministers.
The result of the liberalization of the rules was highly remarkable (*): Between 2003 and 2005, 13.000 real properties were sold to foreigners, whereas only 37.000 transfers were counted for during the 69 years preceding 2003.
However, debates in the National Assembly caused opposition parties to file a challenge to the amended Article 35 with the Turkish Constitutional Court. The Court annulled the Article in its entirety on March 14th, 2005 and additionally decided that the annulment would come into force on July 26th, 2005.
The Turkish Land Registry and Cadastre General Directorate then sent a circular to the Registry Offices instructing execution of real estate transactions by foreigners acquired before July 26th, 2005 and suspending of new acquisitions until new regulations were promulgated.
Finally, on December 29th, 2005 the National Assembly approved new regulations and published them in the Turkish Official Gazette on January 7th, 2006 (with retroactive effect and entering into force dating back to July 26th, 2005).
Article 35 basics regarding real property acquisition by foreigners are as follows:
Foreign natural persons:
Subject to foreign nation reciprocity, complying with legal restrictions and zoning ordinances, foreign natural persons can acquire, for residential or commercial purposes, real properties and limited real rights. However, the properties and limited real rights acquired by a single foreign natural person shall not exceed 2.5 hectares. The Council of Ministers has the power to increase this amount up to 30 hectares.
Foreign commercial corporations established as a legal entity:
Foreign commercial corporations are "established as a legal entity in foreign countries according to their own law". They should not be confused with "foreign capital companies", established in Turkey with foreign capital. The latter have no limitations on rights acquiring real estate.
The foreign commercial corporations can acquire real property and limited real rights in Turkey provided that particular laws permit. The most significant articles under Turkish law allowing foreign legal entities to acquire real property or other real rights are the followings:
- Article 87 of the "Petrol Act" (Law No.6326) allows commercial petrol corporations which work with relevant authorization, the rights to acquire the private property situated in a petrol field by negotiation with the owner or by expropriation.
- Article 8 of the "Encouragement of Tourism Act" (Law No.2634) allows such foreigners to acquire real property and other real rights as right of access in tourism regions.
- Article 3/d of the "Foreign Direct Investment Law" regulates the acquisition of real properties or other real rights by corporations established in Turkey and owned or shared by foreign natural persons or foreign legal entities.
Article 35/III states that foreign natural persons and foreign commercial corporations can have a mortgage registered in principle.
This rule is also related to the "mortgage with a foreign currency practice" regulated recently by the New Turkish Civil Law (Art. 857/II). According to this rule, to place a mortgage in a foreign currency, the underlying loan must be from a (foreign or local) corporate lending institution and be landed in a foreign currency or in Turkish Lire tied to a foreign currency exchange rate.
Acquisition by Inheritance or Disposition Will:
Acquisition by inheritance is possible provided that reciprocity exists and no further limitations will be taken into consideration. Nevertheless, those rights acquired by inheritance must be liquidated if the reciprocity does not exist.
In case of an acquisition by disposition will, on the contrary, all limitations and clauses mentioned here above for foreign natural persons shall be binding.
Foreign persons other than foreign natural persons and foreign commercial corporations cannot acquire real property or other real rights within the Republic of Turkey.
ii. Restrictions on foreign natural persons:
Firstly, the reciprocity in law and in practice must exist and acquisition shall comply with legal restrictions.
Secondly, the property and independent and continuous limited real rights acquired by a single foreign natural person shall not exceed 2,5 hectares. The Council of Ministers may increase this to 30 hectares.
The total square meters of properties allowable to be acquired by foreigners are also limited by a ratio per city area. This ratio is up to a maximum of 5/1000 per city area and it is to be determined by the Council of Ministers.
iii. Geographic, strategic, social and cultural restrictions:
Lands with strategic importance to the Nation, to be protected for reasons of common interests or national security such as irrigation, agriculture, energy, mines; with religious or cultural characteristics or flora or fauna characteristics, shall not be acquired by any foreign person. The Council of Ministers has the power to determine those lands of strategic importance according to the submission of related governmental bodies or institutions.
Misuse or abuse of the rights:
In the case of misuse or abuse of these rights, the government has the right to force the foreign person or entity to sell or liquidate the offending property, in a period determined by the Ministry of Finance. Otherwise, the property will be liquidated by administrative bodies and the amount received will be paid to the foreign person.
(*) Statistics according to the Land Registry and Cadastre General Directorate.
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.