Read
Real Estate Acquisition by Foreign Real Persons and Foreign Companies in Turkey
08/07/2016
Att. Levent Cengiz
levent.cengiz@cengiz.av.tr
Real Estate Acquisition by Foreign Real Persons and Foreign Companies in Turkey
1) Introduction
Investment in real estate[i] has always been one of the favorite choices for investors. According to Knight Frank Global Price Index Q4 2015[ii] and Q1 2016[iii] reports, Turkey leads global house growth with 18% and 15% in order. Furthermore, after the abolishment of the reciprocity principle in 2012, real estate acquisition in Turkey has been even more attractive to foreign investors. Moreover, according to Article 31/1/b of Law No.6458 on Foreigners and International Protection, a short-term residence permit may be issued for foreigners who possess real estate in Turkey. However, the investors should also consider the legal requirements before making their decisions. This article aims to provide brief information regarding the real estate acquisition by foreign real persons and foreign companies in Turkey.
2) Real Estate Acquisition by Foreign Real Persons
The issue is mainly regulated in Article 35 of the Land Registry Law No.2644. The following conditions must be satisfied:
a) Foreign person must have a nationality of a country designated by the Council of Ministers. Currently, the citizens from 183 countries are allowed to purchase a real estate in Turkey. As the list of these countries is confidential, it is advised to check the availability at the Land Registry Office in advance.
b) The legal restrictions must be complied with. For instance, according to Articles 2/d and 5/b of Law No.5580 on Private Educational Institutions, private schools established by foreigners can only acquire new land with the permission of the Council of Ministers.
c) Briefly, pursuant to Articles 7 and 9 of the Law No.2565 on Military Forbidden Zones and Security Zones, the foreigners are not permitted to acquire real estate in the Military Forbidden Zones.
d) The total area of “real estate” and “independent and continuous limited real rights” that a foreign person is permitted to acquire cannot exceed 30 hectares throughout Turkey. The Council of Ministers has the discretion to increase this limit to 60 hectares.
e) Moreover, the restrictions specified in Article 35 do not apply to immovable pledges established in favor of foreign persons.
f) The total area of real estate and limited real rights that foreigners are permitted to acquire cannot exceed 10% of the total area of private real properties in the relevant district.
g) In case the real estate acquired is unconstructed, foreign person must submit the construction project to the Ministry within 2 years. Upon determining the commencement date and completion period, the Ministry approves the project and sends it to the Land Registry Office where the real estate is registered. The Ministry also monitors whether the project is constructed within the determined period of time.
h) It should be noted that the Council of Ministers is authorized to further limit, partially or fully suspend or prohibit the acquisition of real estate and limited real rights by foreigners in Turkey, in cases where the national interest so requires.
In addition, there is no difference for foreigners between purchasing a real estate or acquiring it through inheritance. In other words, the conditions indicated in Article 35 must be fulfilled for both procedures.
Furthermore, the real estate or limited real right acquired, used or inherited against Article 35 will be liquidated by the Ministry of Finance, in case they are not liquidated within the period of 1 year granted by the Ministry.
3) Real Estate Acquisition by Foreign Companies
The Land Registry Law provides different regulations for companies (having legal personality) (i) established in a foreign country in accordance with the laws of their respective jurisdictions and (ii) established in Turkey with foreign capital.
3.1) Companies Established in a Foreign Country
According to Article 35/2 of the Land Registry Law, these companies can only acquire real estate and limited real rights within the scope of special laws. In this respect, there are special provisions in various laws such as Petroleum Law, Law on Industrial Zones and Law Incentivizing Tourism. Furthermore, it is specifically indicated in Article 35/2 that any legal entity established in a foreign country other than companies cannot acquire real estate or limited real rights in Turkey. Therefore, associations and foundations established in a foreign country are not entitled to acquire real estate or limited real rights.[iv]
It must be noted that the conditions for real persons indicated in paragraphs (c), (e), (g) and (h) above are also applicable to companies established in a foreign country in accordance with the laws of their respective jurisdictions.
3.2) Companies Established in Turkey with Foreign Capital
First of all, the companies indicated in Article 36/1 should be explained. The description can be divided into 3 parts. Companies established in Turkey, in which:
a) Parties:
It is also specified in Article 36/3 that obtaining a permission is mandatory for real estate acquisitions in military forbidden zones, military security zones, the areas designated in Article 28 of Law No.2565 and private security zones. According to Articles 5-8 of the Regulation, the permission process is coordinated by the governor’s office.
Moreover, Article 36 is not applicable for various transactions such as the establishment of immovable pledges, acquisition of ownership within the scope of liquidation of immovable pledges, and transfer of real estate and limited real rights arising from mergers and de-mergers. As some of these exceptions may be misused, they are criticized in the doctrine.[v]
Finally, according to Article 14 of the Regulation, the real estate or limited real right acquired or used against Article 36 will be liquidated by the Ministry of Finance, in case they are not liquidated within the period of 6 months granted by the Ministry.
4) Conclusion
On the one hand, real estate acquisitions by foreign real persons and foreign companies are subject to Article 35 of the Land Registry Law. For this reason, the conditions specified in Article 35 must be observed. On the other hand, real estate acquisitions by companies established in Turkey with foreign capital are subject to Article 36 and the relevant regulation. Shortly, if the shareholding of a foreign investor in a company established in Turkey is less than 50%, or if such foreign investor does not have the authority to appoint or depose the majority of the persons having the management rights, such company is permitted to acquire real estate or limited real rights in Turkey regardless of the field of activities stated in its articles of associations. In order to handle the transactions as planned, it is advised to contact the official authorities in advance.
[i] Also called “real property” or “immovable property”
[ii] http://content.knightfrank.com/news/8250/1844-article-1.pdf, (Date accessed: 02.06.2016)
[iii] http://content.knightfrank.com/research/84/documents/en/q1-2016-3846.pdf, (Date accessed: 02.06.2016)
[iv] Nuray Ekşi, Acquisition of Real Estate By Foreigners in Turkey, Beta Publications, 2nd Edition, 2012- Istanbul, p. 162-166. See also: Aysel Çelikel, Law on Foreigners, Beta Publications, 21st Edition, 2015 – Istanbul, p. 295.
[v] Mehmet Köksal, Acquisition of Real Estate and Limited Real Rights By Foreigners, Adalet Publications, 2015 – Ankara, p. 70-71.
Att. Levent Cengiz
levent.cengiz@cengiz.av.tr
Real Estate Acquisition by Foreign Real Persons and Foreign Companies in Turkey
1) Introduction
Investment in real estate[i] has always been one of the favorite choices for investors. According to Knight Frank Global Price Index Q4 2015[ii] and Q1 2016[iii] reports, Turkey leads global house growth with 18% and 15% in order. Furthermore, after the abolishment of the reciprocity principle in 2012, real estate acquisition in Turkey has been even more attractive to foreign investors. Moreover, according to Article 31/1/b of Law No.6458 on Foreigners and International Protection, a short-term residence permit may be issued for foreigners who possess real estate in Turkey. However, the investors should also consider the legal requirements before making their decisions. This article aims to provide brief information regarding the real estate acquisition by foreign real persons and foreign companies in Turkey.
2) Real Estate Acquisition by Foreign Real Persons
The issue is mainly regulated in Article 35 of the Land Registry Law No.2644. The following conditions must be satisfied:
a) Foreign person must have a nationality of a country designated by the Council of Ministers. Currently, the citizens from 183 countries are allowed to purchase a real estate in Turkey. As the list of these countries is confidential, it is advised to check the availability at the Land Registry Office in advance.
b) The legal restrictions must be complied with. For instance, according to Articles 2/d and 5/b of Law No.5580 on Private Educational Institutions, private schools established by foreigners can only acquire new land with the permission of the Council of Ministers.
c) Briefly, pursuant to Articles 7 and 9 of the Law No.2565 on Military Forbidden Zones and Security Zones, the foreigners are not permitted to acquire real estate in the Military Forbidden Zones.
d) The total area of “real estate” and “independent and continuous limited real rights” that a foreign person is permitted to acquire cannot exceed 30 hectares throughout Turkey. The Council of Ministers has the discretion to increase this limit to 60 hectares.
e) Moreover, the restrictions specified in Article 35 do not apply to immovable pledges established in favor of foreign persons.
f) The total area of real estate and limited real rights that foreigners are permitted to acquire cannot exceed 10% of the total area of private real properties in the relevant district.
g) In case the real estate acquired is unconstructed, foreign person must submit the construction project to the Ministry within 2 years. Upon determining the commencement date and completion period, the Ministry approves the project and sends it to the Land Registry Office where the real estate is registered. The Ministry also monitors whether the project is constructed within the determined period of time.
h) It should be noted that the Council of Ministers is authorized to further limit, partially or fully suspend or prohibit the acquisition of real estate and limited real rights by foreigners in Turkey, in cases where the national interest so requires.
In addition, there is no difference for foreigners between purchasing a real estate or acquiring it through inheritance. In other words, the conditions indicated in Article 35 must be fulfilled for both procedures.
Furthermore, the real estate or limited real right acquired, used or inherited against Article 35 will be liquidated by the Ministry of Finance, in case they are not liquidated within the period of 1 year granted by the Ministry.
3) Real Estate Acquisition by Foreign Companies
The Land Registry Law provides different regulations for companies (having legal personality) (i) established in a foreign country in accordance with the laws of their respective jurisdictions and (ii) established in Turkey with foreign capital.
3.1) Companies Established in a Foreign Country
According to Article 35/2 of the Land Registry Law, these companies can only acquire real estate and limited real rights within the scope of special laws. In this respect, there are special provisions in various laws such as Petroleum Law, Law on Industrial Zones and Law Incentivizing Tourism. Furthermore, it is specifically indicated in Article 35/2 that any legal entity established in a foreign country other than companies cannot acquire real estate or limited real rights in Turkey. Therefore, associations and foundations established in a foreign country are not entitled to acquire real estate or limited real rights.[iv]
It must be noted that the conditions for real persons indicated in paragraphs (c), (e), (g) and (h) above are also applicable to companies established in a foreign country in accordance with the laws of their respective jurisdictions.
3.2) Companies Established in Turkey with Foreign Capital
First of all, the companies indicated in Article 36/1 should be explained. The description can be divided into 3 parts. Companies established in Turkey, in which:
a) Parties:
- foreign real persons,
- foreign legal persons established in accordance with laws of foreign jurisdictions,
- international organizations,
- owns 50% or more of the shares, or
- have the authority to appoint or depose the majority of the persons having the management rights,
- may acquire real estate or limited real rights in order to conduct the activities stated in their articles of associations.
- the companies indicated in Article 36/1 become a direct or indirect shareholder of another company established in Turkey and the foreign investor’s final shareholding is 50% or more in such company,
- the foreign investors directly or indirectly acquire 50% or more shares of the domestic capital companies owning the real estate,
- the shareholding of foreign investors in an existing foreign capital company owning the real estate reaches 50% or more as a result of the share transfer.
It is also specified in Article 36/3 that obtaining a permission is mandatory for real estate acquisitions in military forbidden zones, military security zones, the areas designated in Article 28 of Law No.2565 and private security zones. According to Articles 5-8 of the Regulation, the permission process is coordinated by the governor’s office.
Moreover, Article 36 is not applicable for various transactions such as the establishment of immovable pledges, acquisition of ownership within the scope of liquidation of immovable pledges, and transfer of real estate and limited real rights arising from mergers and de-mergers. As some of these exceptions may be misused, they are criticized in the doctrine.[v]
Finally, according to Article 14 of the Regulation, the real estate or limited real right acquired or used against Article 36 will be liquidated by the Ministry of Finance, in case they are not liquidated within the period of 6 months granted by the Ministry.
4) Conclusion
On the one hand, real estate acquisitions by foreign real persons and foreign companies are subject to Article 35 of the Land Registry Law. For this reason, the conditions specified in Article 35 must be observed. On the other hand, real estate acquisitions by companies established in Turkey with foreign capital are subject to Article 36 and the relevant regulation. Shortly, if the shareholding of a foreign investor in a company established in Turkey is less than 50%, or if such foreign investor does not have the authority to appoint or depose the majority of the persons having the management rights, such company is permitted to acquire real estate or limited real rights in Turkey regardless of the field of activities stated in its articles of associations. In order to handle the transactions as planned, it is advised to contact the official authorities in advance.
[i] Also called “real property” or “immovable property”
[ii] http://content.knightfrank.com/news/8250/1844-article-1.pdf, (Date accessed: 02.06.2016)
[iii] http://content.knightfrank.com/research/84/documents/en/q1-2016-3846.pdf, (Date accessed: 02.06.2016)
[iv] Nuray Ekşi, Acquisition of Real Estate By Foreigners in Turkey, Beta Publications, 2nd Edition, 2012- Istanbul, p. 162-166. See also: Aysel Çelikel, Law on Foreigners, Beta Publications, 21st Edition, 2015 – Istanbul, p. 295.
[v] Mehmet Köksal, Acquisition of Real Estate and Limited Real Rights By Foreigners, Adalet Publications, 2015 – Ankara, p. 70-71.