For the past decade, there has been an increased demand in purchasing real property in Turkey by foreigners; this has been in parallel to the booming foreign investment and mergers and acquisitions activity in the country. In response to this rising inflow of foreign investment, the Turkish government made radical legislative amendments and took steps to ease the investment environment in Turkey. This had an immediate effect in the market, the number of residential sales to foreign persons last year was 39,663, being the highest number of sales for the five years. The expectancy is similar to this year’s sales.
Investment by foreign individuals
A foreign individual may acquire real estate and/or create rights in rem across Turkey up to 30 hectares (which can be increased up to 60 hectares with the decision of the President of the Republic) in total. The size of the property should not in any event exceed 10% of the total surface area allowed for private ownership in the respective borough.
In case of acquisition of unconstructed land, projects to be developed over it must be submitted to the relevant ministry for approval within two years upon acquisition. If the submission is not made in time or the project is not completed within the approved period, the owner must divest the property within a certain period determined by the Ministry of Treasury and Finance, which cannot exceed one year. Otherwise, the property will be divested ex-officio, and the sale proceeds shall be transferred to the owner.
Investment by foreign entities
Direct ownership of real estate in Turkey by foreign entities is still prohibited, except for special cases provided under specific laws. Even in such exceptions, the lawmaker does not usually allow freehold ownership by foreign entities, but rather allows long term leasehold ownership or right holding through servitude rights. Thus, foreign entities invest in the Turkish property market by establishing and/or acquiring local companies.
Pursuant to introduction of a liberalised regime by the Turkish government, entities having less than 50% of their share capital, or voting rights, controlled by foreigners can freely purchase real property. On the other hand, the relevant city governorship’s approval is required for the acquisition of property and/or creation of rights in rem by Turkish legal entities (i) having 50% or more of their share capital held by or (ii) majority board members/managers of which can be appointed or dismissed by foreign persons, individuals or legal entities. The purpose of the prior approval of the governorships is to ensure the strategic, military or security zones limitations or prohibitions. The governorships will seek the opinions of the General Staff of the Turkish Armed Forces and the Provincial Directorate of the Police Department or the Provincial Directorate of the Gendarmerie Forces to that end.
Furthermore, if 50% or more of a Turkish entity’s (having a freehold ownership of a real estate) share capital (or the foregoing voting rights) is directly or indirectly controlled by a foreign person as a result of a share transfer, there will be a background check after the share transfer to is notified to the Ministry of Industry and Technology. The Ministry informs the General Directorate of Land Registry and Cadastre regularly, on a monthly basis, which then forwards all necessary information relating to properties to the relevant governorship. The governorship, as described above, seeks the opinions of the General Staff of the Turkish Armed Forces and the General Directorate of the Police Department or the Provincial Directorate of the Gendarmerie Forces. In case the governorship determines concerns as to national security arising from ownership of such property, the right holder entity may be required to dispose the property.