Buying Real Estate: Legal Framework for Foreigners

Foreign nationals may, subject to certain restrictions, acquire immovable property in Turkey such as residential units, commercial premises or land. Ownership of real estate is acquired only upon registration in the land register, and a sales contract is not valid unless it is concluded in official form; in practice, sales in which a foreigner is the buyer are carried out at the land registry offices (tapu müdürlüğü). The buyer's nationality, the region in which the property is located, the zoning and title status of the property and the manner in which the purchase price is paid directly affect both the validity and the cost of the transaction. This article sets out the rules applicable to the acquisition of real estate by foreigners and the principal points to be observed in the purchase process.

Contents

• May foreigners acquire real estate?
• Which restrictions and forbidden zones apply?
• May companies with foreign capital acquire real estate?
• Which checks should be carried out before the purchase?
• Which form does the sales contract require?
• How is the transfer effected at the land registry?
• What should be considered when buying a residence that has not yet been built?
• What should be observed with regard to the price and payment?
• Which taxes and costs arise?
• Does the acquisition of real estate confer a residence permit or citizenship?
• Conclusion

May foreigners acquire real estate?

Under Article 35 of the Land Registry Law (Tapu Kanunu), foreign natural persons who are nationals of countries designated by the President may, provided that the statutory restrictions are complied with, acquire immovable property and limited rights in rem in Turkey. The reciprocity requirement was abolished by an amendment in 2012, and nationals of Germany, Austria and Switzerland are, as a rule, also able to acquire real estate in Turkey. Nevertheless, whether any special restrictions apply depending on nationality, the nature of the property and its location should be confirmed with the competent land registry office before the transaction. Persons who have lost Turkish citizenship with permission and who fall within the scope of Article 28 of Turkish Citizenship Law No. 5901, on the other hand, enjoy the rights granted to Turkish citizens with regard to the acquisition of real estate.

Commercial companies incorporated abroad under the law of their home country may acquire real estate only within the framework of special statutory provisions; foreign legal entities other than such companies cannot acquire real estate. In practice, the acquisition of real estate in Turkey by a foreign company is frequently carried out through a company to be established in Turkey. However, the restrictions of Article 35 do not apply to the creation of a real estate charge, that is a mortgage (ipotek), in favour of foreign natural persons and companies.

Which restrictions and forbidden zones apply?

The total area of the immovable property and of the independent and permanent limited rights in rem acquired by foreign natural persons may not exceed ten per cent of the area of the district that is subject to private ownership and, per person, thirty hectares nationwide. Where the interests of the country so require, the President is authorised to restrict, suspend or prohibit the acquisition of real estate by foreigners in terms of country, region, duration, number, type and quantity. Foreigners are, moreover, obliged to submit the project they intend to develop on undeveloped real estate they have purchased, that is a plot or land, to the competent Ministry for approval within two years.

Under Law No. 2565 on Military Forbidden Zones and Security Zones, foreign natural persons and legal entities cannot acquire real estate in military forbidden zones; the President may also decide that foreigners may not acquire real estate in areas designated on account of their proximity to military forbidden zones or for other strategic reasons. For this reason, in sales to a foreigner the land registry office checks whether the property lies within such a zone. Real estate acquired in breach of the law, or found to be used contrary to the purpose of its acquisition, is liquidated and converted into money if the owner does not dispose of it within the period granted.

May companies with foreign capital acquire real estate?

Companies established in Turkey in which foreigners hold fifty per cent or more of the shares or are able to appoint the majority of the management body may, under Article 36 of the Land Registry Law, acquire ownership of real estate or limited rights in rem in order to carry out the business activities specified in their articles of association. Acquisitions by such companies in military forbidden zones and military security zones are subject to the permission of the General Staff or of the commands it authorises, and acquisitions in special security zones are subject to the permission of the governorship (valilik). The same principles apply where foreign investors acquire fifty per cent or more of the shares of a Turkish company that owns real estate.

This structure is preferred in particular for real estate to be acquired for investment or operational purposes; however, the property acquired must be connected with the company's business activities, and its use is monitored by the governorships on the basis of the land registry records. The acquisition in the company's name of a residence intended for the personal use of the company's shareholders should therefore be assessed separately.

Which checks should be carried out before the purchase?

Before the purchase decision is taken, the land register entry for the property should be examined in order to establish who the owner is, whether the property is held in co-ownership or in joint ownership, and whether any mortgages, attachments, interim injunctions, annotations or declarations are registered. In the case of independent units, it should also be checked through the municipal records whether condominium ownership (kat mülkiyeti) or merely a construction servitude for condominium (kat irtifakı) has been established, whether an occupancy permit (iskan) has been obtained and whether the building conforms to its approved plans. It is seen in practice that extensions deviating from the plans, unlicensed storeys or changes of use lead to problems that, after the purchase, can only be remedied at considerable cost.

In addition, the zoning status of the property, any outstanding property tax and service charge debts, whether the property is let to tenants and whether it falls within the scope of urban regeneration should be investigated. Where the seller is a company, the power of representation of the persons who will carry out the sale should be verified through the trade registry records, and where the seller acts through an attorney-in-fact, the scope and validity of the power of attorney should be verified.

Which form does the sales contract require?

Under Article 237 of the Turkish Code of Obligations and Article 706 of the Turkish Civil Code, a contract for the sale of real estate is not valid unless it is concluded in official form. Although real estate sales contracts may generally be drawn up at the land registry offices or, within the framework of Article 61/A of the Notaries Law, at notary offices, in sales involving foreigners the transactions are carried out through the land registry offices owing to restrictions in notarial practice. Irrespective of the authority before which the sale is concluded, ownership passes to the buyer only upon registration in the land register. Sales contracts concluded in writing between the parties but without observing the official form remain private written documents and do not entitle the buyer to demand registration; amounts paid on the basis of such contracts may, as a rule, be reclaimed under the provisions on unjust enrichment.

Where the transfer is to take place at a later date, the parties may conclude a promise-to-sell agreement (satış vaadi sözleşmesi) for the real estate drawn up by a notary in official form; this option is also available to foreign buyers. Under Article 1009 of the Turkish Civil Code, the promise-to-sell agreement may be annotated in the land register and thereby made enforceable against subsequent owners and right holders as well. The promise-to-sell agreement should clearly regulate the payment schedule of the price, the date of transfer, the handover status of the property and the rights of the parties in the event of breach of contract, since this agreement is one of the important instruments securing the buyer's rights during the period until the official sale.

How is the transfer effected at the land registry?

The application for the sale is made via Web Tapu or directly to the land registry office. A valuation report is not a general requirement for every sale in the acquisition of real estate by foreigners. In transactions aimed at acquiring Turkish citizenship through investment in real estate, and in other cases specifically provided for in the relevant regulations, documents relating to valuation and to the determination of the investment amount may, however, be required; the scope and validity conditions of these documents are determined by the regulations of the General Directorate of Land Registry and Cadastre (TKGM) in force on the date of the transaction.

For the land registry transaction, the buyer must obtain a tax identification number and present a passport and photograph. For residential property, a compulsory earthquake insurance (DASK) policy is required. A sworn interpreter is present during the transaction for any buyer or seller who does not speak Turkish. If the buyer will not travel to Turkey, the transaction may be carried out through an attorney-in-fact authorised by means of a power of attorney executed abroad at a Turkish consulate, or before a notary in the country where the buyer is located, bearing an apostille and translated into Turkish. Upon signature of the official deed and payment of the fees, ownership is registered in the buyer's name.

What should be considered when buying a residence that has not yet been built?

Although the purchase of residences off-plan or at the construction stage is common in practice, it entails additional risks for the buyer. Where the buyer qualifies as a consumer, the provisions of Article 40 et seq. of Consumer Protection Law No. 6502 on pre-paid housing sales apply. Accordingly, a pre-paid housing sales contract may not be concluded before a building permit has been obtained, the sale must either be registered in the land register or the promise-to-sell agreement must be drawn up by a notary in official form, and the consumer has a right of withdrawal within fourteen days without giving reasons.

The existence of statutory protection does not, however, remove the need for a separate examination of the project and the developer. It should be checked who owns the land, whether there is a construction agreement in return for flat units (kat karşılığı inşaat sözleşmesi) between the developer and the landowner, what the scope of the building permit is and whether a construction servitude for condominium has been established, and payments should, as far as possible, be linked to the progress of construction and to safeguards in the land register.

What should be observed with regard to the price and payment?

Under Article 8/1 of the Communiqué relating to Decree No. 32 on the Protection of the Value of the Turkish Currency, persons resident in Turkey may not agree in real estate sales contracts concluded among themselves on the price and other payment obligations arising from such contracts in foreign currency or indexed to foreign currency. As this prohibition applies only to contracts between persons resident in Turkey, the residence status of the buyer and the seller should be taken into account when determining the currency of the price.

In purchases of real estate by foreign natural persons, a foreign exchange purchase certificate (döviz alım belgesi, DAB) must additionally be issued pursuant to Circular No. 2022/1 of the General Directorate of Land Registry and Cadastre. In this context, the foreign currency corresponding to the sale price is sold to a bank, for onward sale to the Central Bank, before the land registry transaction, the foreign exchange purchase certificate issued by the bank is forwarded to the land registry office, and the price is paid to the seller in Turkish lira. In transactions carried out with a view to acquiring citizenship, bank records showing that the price has been paid to the seller and additional documents relating to the determination of the investment amount are required.

It is also important that the price declared at the land registry reflects the actual sale price. Under Article 63 of the Law on Fees, the title deed fee is calculated on the declared price, which may not be lower than the property tax value, and if it is subsequently established that the declared price did not reflect the actual position, the fee attributable to the difference is assessed together with a tax loss penalty. Experience shows that sales declared below the actual price may also increase the tax burden that will arise for the buyer on a later sale of the property and may create difficulties in proving payment. It is therefore advisable to make payments through banking channels and with a description of their purpose.

Which taxes and costs arise?

Pursuant to Tariff No. (4) annexed to the Law on Fees, the title deed fee is calculated at a rate of 2 per cent separately for the buyer and for the seller; the parties may also agree contractually on a different allocation of who bears the fee in their internal relationship. In addition, a revolving fund fee, where required a fee for the valuation report, interpreter costs and, where required, costs for the power of attorney are incurred. The owner of the property pays property tax every year from the year following the acquisition.

On the first delivery of newly built residences or commercial premises, deliveries to foreign natural persons not resident in Turkey are exempt from value added tax under Article 13/1-i of the VAT Law, provided that the price is brought into Turkey in foreign currency. If real estate acquired under the exemption is disposed of within three years, the tax not collected in due time must be paid together with deferral interest before the land registry transaction.

Does the acquisition of real estate confer a residence permit or citizenship?

Under Article 31 of Law No. 6458 on Foreigners and International Protection, ownership of real estate in Turkey is one of the grounds for a short-term residence permit. However, in practice additional requirements such as the residential nature and a minimum value of the property are applied for this permit, and ownership of real estate does not automatically give rise to a residence permit.

Under the Regulation on the Implementation of the Turkish Citizenship Law, foreigners who acquire real estate of the specified minimum amount and undertake to have an annotation entered in the land register that the property will not be sold for three years may apply to acquire Turkish citizenship by way of exception. The minimum amount is currently applied as USD 400,000, and the investment amount is determined by the Amount Determination Certificate forming the basis for the acquisition of citizenship through the acquisition of real estate (Taşınmaz Edinimi Suretiyle Vatandaşlık Kazanımına Esas Tutar Tespit Belgesi, TTB).

Conclusion

Foreigners may acquire real estate in Turkey, subject to the area restrictions under Article 35 of the Land Registry Law and the prohibitions relating to military and strategic zones. A sales contract is not valid unless it is concluded in official form, and ownership passes upon registration in the land register; in practice, sales in which a foreigner is the buyer are carried out at the land registry offices, and purchases by foreign natural persons additionally require a foreign exchange purchase certificate. The currency of the price, the price to be declared at the land registry and the tax consequences should be assessed together when planning the transaction.

For this reason, the title, zoning and building status of the property should be examined before the purchase decision is taken, and where the transfer is to take place at a later date, the buyer's rights should be secured by a promise-to-sell agreement drawn up by a notary and an annotation in the land register.

GEMS Schindhelm advises on the purchase of real estate, including the examination of title and zoning status, the drafting of promise-to-sell agreements and sales contracts, the handling of land registry procedures and the acquisition of real estate by companies with foreign capital. This article is for general information purposes only and does not constitute a legal opinion or legal advice; each transaction must be assessed separately according to the circumstances of the specific case and the legislation in force.