Foreign purchases of real estate in Turkey

A welcoming culture, warmth of human relations and a perfect price/quality correlation are often cited among the primary motivations of foreigners purchasing property in Turkey

Purchasing property in Turkey is becoming increasingly popular with holiday home owners and investors around the globe. According to a broad economic and political analysis of Turkey dated November 2006 by property investment experts Amberlamb, the Turkish property sector is on track to become one of the top five performing European markets in terms of capital appreciation in 2007.^[1]. Several factors are contributing to the popularity and the trend displayed by foreign purchases of property also had important repercussions within Turkey. The issue is especially notable given Turkey's potential EU membership and the related economic integration processes.^[2]

[edit] Land ownership in Turkey

General view of Marmaris from the newly-built residential quarter of Siteler

One particularity of overall landownership profile in Turkey is the high proportion of land owned by the state, either directly, under the authority of the Undersecretariat of Treasury (Hazine in daily language), or indirectly through the inheritance and management of Ottoman foundations (vakıf), under the authority of the General Directorate for Foundations. Vakıf (Foundation) lands is the real estate legated by their original proprietors, often centuries ago, for the purpose of the upkeep of a public building, a community service, a particular person or a group of persons. Foundations also constitute part of the assets held by Vakıfbank, a bank originally founded with the purpose of putting the foundations in value for the economy of Turkey and named in reference to them. Hazine (Treasury) lands are those, often covering vast areas in rural Turkey, for which no private ownership is recorded at any time, imperial legacies that did not fall within the scope of foundations, or land that passed over to state ownership through many possible reasons.

Therefore, unlike many other European countries where most of the land area is privately owned, much of the land in Turkey is still held by the state. One aspect of this situation is the simplification of procedures in the case of public works or investments that are envisaged where, instead of costly expropriations, correspondence between ministries is often sufficient to make suitable land easily available for projected works. Another is the constantly re-surging plans by various governments to make one or other particular part or type of state land available for private sector use and development. These issues of land-grant become particularly sensitive when the land in question is important for fauna or flora in environmental terms, for irrigation, for any other public use, or when conflicts of interest arise or private interests influencing government plans are detected by the opposition groups. Notwithstanding occasionally heated debates on the matter, by complying with basic public relations principles, vast parcels of land do become available to investors in Turkey through the consent of governments pursuing encouraging policies to the effect.

[edit] Historical Background

The issue of foreign purchases of real estate is associated with very bitter reminiscences in Turkey. During the weakening phase of the Ottoman Empire in the 19th century and the global dominance of western colonialism, purchases without constraint and effective surveillance of real estate by the nationals and companies of western powers was one of the issues on which the Ottoman state had been subjected to the direst foreign pressures. As a consequence of these pressures, a 1858 firman on "Reform" had announced a grant of permission in this respect, but the necessary legal arrangements had been delayed till 1868. With the enactment of the 1868 regulation, according to one estimate, British capitalist-farmers (see Levantine mansions of İzmir) had almost immediately emerged as having acquired one third of all arable lands in the entire vilayet of İzmir (Aydın in name), possibly held in an indirect manner till then, and by 1878, the majority of the arable land in the same province. This trend coincided with the influx of refugees from lands lost for the Ottoman Empire, and the migrants often saw themselves having to buy property from foreigners in their own country.^[3] A further law in 1913 also allowed foreign legal entities (companies, foundations etc.) to purchase property in Ottoman lands, with decisive effects for the early foundations of the state of Israel. A partial face-about by the Committee of Union and Progress, simultaneous to the outbreak of the World War I in Europe, was one of the causes for the deterioration of relations between Turkey and the Allied powers Britain, France and Italy. The Treaty of Lausanne which established modern Turkey laid a ground based on a strict understanding of reciprocity in the matter, on a bilateral and contractual bases as concluded with individual countries at first, and full legal reciprocity after 1934.

[edit] Legal Framework and the Recent Changes

İğneada beach on the Black Sea at five kilometers distance from the border with Bulgaria and five hours drive from İstanbul

The principles governing purchase of property by foreign (i.e. non-Turkish) nationals in Turkey is governed by the 1934 Property Act (Law Nr. 2644 dated 22 November 1934). The legal framework set up in 1934 was modified for a first time by a by-law (Law Nr. 4916) dated 3 July 2003. This law was predicated on a reciprocity clause; that is to say, citizens of countries whose governments allow Turkish nationals to purchase real estate in their country, were to be allowed to purchase real estate in Turkey.

However, following steps taken by Turkey's main opposition party CHP, the modifications brought by the 2003 by-law were declared as void by the Turkish Constitutional Court on 26 April 2005, in a decision to enter into effect as of 27 July 2005 and the purchase of real estate by foreign nationals was suspended until a modified law dated 7 January 2006 was brought into effect. This law, Law Nr. 5444, now enacted, instead of being a by-law modifying various paragraphs of the 1934 Property Act, is a fully stated legal text (still on the basis of a modification of the 1934 Act). (the full text in Turkish). This current law is retrospective in its application to 26 July 2005 and is largely the same as the law of 3 July 2003, with the following notable amendments, especially with regards to size limitations:

1. A foreign national cannot purchase more than 25,000m² (6 acres) of land (constructed or not) in Turkey without special consent from the Turkish Council of Ministers. The council of Ministers is authorised to increase this limit up to 300,000m2 per person.
2. Foreign national ownership of real estate cannot exceed 5/1000 of land in any designated province.
3. The property also has to be within a municipality. Foreigners can not buy in villages.

As for the handling of the transactions suspended since July 2005, the new law is also applicable for applications of Title Deeds in the period between the former law becoming void and the current law coming into effect.

For the moment, all overseas nationals are subject to a clearance by the Turkish military authorities before being allowed to proceed with any purchase. This is to establish that the land/property is not in a militarily sensitive area, and that the individual is considered as suitable to own real estate in Turkey. Designation of land suitable for overseas purchasers is expected to be determined at a later stage by Land Registry Offices, based on information supplied by the military.

The Council of Ministers is also expected to determine, in the three months following the promulgation of the law, those areas where reserves on purchase due to considerations stemming from irrigation, energy, agriculture, mining, history, religion and culture issues and for preservation of natural flora and fauna are put in effect. Property acquired through inheritance is not subject to the limitations and reserves stated above.

From January 2008, foreign investors will be able to apply for a mortgage within Turkey. The revision in existing laws, aims to encourage foreign investment, replacing the previous barrier whereby investors had to finance their Turkish real estate through cash purchases or mortgages arranged within their native country. ^[4]

[edit] Foreign Ownership Market Trends to 2005

Taken as a whole, during the 69-year period starting in 1934 with the enactment of the Property Law until the first modifications of July 2003, 37342 parcels of property had been acquired by non-Turkish legal entities (companies) or private individuals in Turkey. It is to be noted that 2400 of these were Syrian nationals, who themselves had remained as such but whose properties had become part of the territory of Turkey with the adhesion of the Republic of Hatay to Turkey in 1939, the whole transitional proceedings that took place having been counted, for the purposes of statistics, as re-acquisitions by these Syrians.

The 2-year duration of the validity of the old law (July 2003-July 2005) gave some interesting insights on foreign national property buying trends in Turkey both for property market players and for official bodies.

During the two years for which the July 2003 modification had remained valid, 15842 parcels of property (2931 among these being unbuilt land lots) have been acquired by non-Turkish legal or private persons in Turkey. The purchasers constituted a total of 18959 legal or private owners or co-owners from a total of 58 different countries. In the forefront came British nationals (8625 persons acquiring 6333 parcels), who were followed by Germans (3482 persons for 3210 parcels), with Dutch nationals, Danes, Norwegians, Greeks, Irish nationals, Swedes and Belgians respectively occupying the next places. (Reuters İstanbul - in Turkish)

It was also observed that, during this 2-year period, the districts most favoured by foreign buyers were Alanya, Fethiye, Didim, Bodrum, Kuşadası along the coastline, as well as Ürgüp in Cappadocia. Alanya is a particularly preferred location for Germans and Scandinavians, while the British purchases are at their highest level of concentration in Fethiye and Didim Reuters İstanbul - in Turkish. Some of these towns have come to include sizable proportions of seasonal or full-time inhabitants made up of foreign homeowners. These homeowners already display a marked tendency to set up associations among themselves to promote their specific areas of interests such as the translation of key texts into their respective languages, contacts with officials, cultural and religious activities such as church-building and to provide guidance to newer purchasers (see Expat community web portal in Turkeyor an alternative but comprehensive resource)

One of the fundamental keys to Turkey's successful transition to full EU membership is its ability to attract and retain Foreign Direct Investment (FDI). It has set itself a target of attracting 1.2 trillion dollars from Gulf States initially^{[citation needed]} and therefore the Crown Prince of Dubai's immediate financial commitment to the country's real estate sector not only gave property investors faith in Turkey it gave other nations faith in the country as a whole and should lead to the further promotion of Turkey and an increasing flow of FDI.^[5]

[edit] Points of Controversy in Turkey on Foreign Home Ownership

The foreign purchase of real estate is a widely discussed subject in the Turkish media and among the public. Some of the opinions put forth in this context may not be based on sound facts, while others are results of in-depth studies.^[6] Opponents of liberalisation and internationalisation of the real estate market in Turkey also made allusions based on interpretations of evolutions in Spain and Israel.

Another issue which will inevitably arise is the concern over the specific case of Greek nationals. Despite EU pressures, a national land registry system in full legal clarity is yet to be fully established in Greece (except in the Dodecanese, where the system was set up during the Italian rule between 1912-1945). Thus, a legal move questioning whether there could be reciprocity with a country without a land registry system was indeed launched under the auspices of opposition CHP party, before the application covering the new law in general was made to the Constitutional Court and set the agenda. The issue will almost certainly not be dismissed easily by proponents of a liberal property market. In addition, there are also occasional reports of a more sensational nature, usually specific to some sections of the media. These relate to Israeli or Arab investors buying land en masse in the prospering Southeastern Anatolia Project region, politically-minded purchases in the Black Sea region or in Eastern Anatolia, where sizable communities of Pontic Greeks or Armenians previously lived.

The challenge for the Turkish government will be to negotiate a path which satisfies the sceptical elements within Turkish politics and among the public, while at the same time appeasing liberals and satisfying the open-market criteria which the E.U. expects from Turkey as it moves towards accession.

On a more specific and strictly professional focus, the ongoing efforts by Turkey's real estate agents to demarcate the definition and the boundaries of their profession and to discourage occasional and non-professional intermediaries away should also be mentioned. The compulsory norms to be respected in order to exercise the profession are still rather recent (since 2004). Real estate agents are required to be members to and exhibit their membership of the association set up for their region (such as Kusemder for Kuşadası, or Maremder for Marmaris). These local associations are gathered within the framework of the national federation, Temfed, which provides a full list of the regional associations.

[edit] Foreign Ownership Market Data under the new legislation (after 7 January 2006)

After the annulment of the 2003 Law in July 2005, during the 6-month period of legal uncertainty, the market (focused on foreign buyers) understandably came to a standstill. However, local Land Registry Offices continued to process applications in anticipation of the new law. 2006 and 2007 data indicates that the market took off to a clear and vivid boost.

Information on overseas buyers provided by the First Economic Counsellor of the Turkish Embassy in London for 2006 was as follows:

Britons were the first in buying property in Turkey among foreign nationals in the first quarter of the year according to the latest data released by the Land Registry Office. From 7 January 2006 when the new law was put into effect, to mid-April 2006, 588 British Citizens purchased 420 properties in Turkey. Secondly 265 Germans bought 258 properties in Turkey. In the same period, total property sale to foreigners and total foreigners bought property in Turkey reached 1,206 and 1,565 respectively. (25 April 2006)"

The newspaper Cumhuriyet reported on 11 June 2006 that, since the 5/1000 limit was exceeded in Hatay Province, sales to foreign nationals of real estate located in that province was suspended until further notice. The congestion is a consequence of 1300 parcels of property that have been bought in recent times by foreign nationals adding up on the 2400 land lots owned by Syrians, some of them quite large. The particular case of Hatay put apart, as of 1 June 2006, Antalya Province was in the lead in the number of foreign purchases of real estate in Turkey with 5566 lots sold, provinces of Aydın (3998), Muğla (3035), İstanbul (1463) and İzmir (722) occupying the following places.

The most recent data provided by the Ministry, covering the period from 2002 (when the incumbent government came into office) to 2007 indicates a total of 40,206 land lots sold to 48,314 foreign private persons, extending to a total area of 25,350,361 square meters. As such, a total of seventy four seventy five thousand foreign nationals own an area of 38,419,151 square meters of lans in Turkey. On area basis the provinces of Muğla (4,445,259 meter squares), Antalya (3,810,118 meter squares), Aydın (3,001,075 meter squares) came in the lead. On the basis of the number of foreign nationals acquiring property, the situation was as follows: Antalya (26,031 foreign nationals), Muğla (12,865 foreign nationals), İstanbul (8,830 foreign nationals), Aydın (7,415 foreign nationals), Bursa (5,241 foreign nationals), İzmir (4,145 foreign nationals). German nationals came the first in Antalya Province and British citizens in Muğla and Aydın Provinces. Purchases by Greek nationals displayed a striking preminence in İstanbul and, in a more recent trend, in Bursa. ^[7]