David Dunne

Turkish real estate law:
A General look at Turkish real estate law concerning foreign persons

Real estate acquisition by foreign persons is regulated under two different pieces of legislation:

a)The Foreign Direct Investment Law, which used to allow foreign-owned companies to acquire real property as if they were a locally owned Turkish company.

b)The Land Registry Law, which allows both real persons and legal persons to acquire real estate in Turkey.

Despite the absolute freedom granted to companies by the Foreign Direct Investment Law, the Land Registry Law imposes some limitations on foreigners.

I wrote about the annulment of the Foreign Direct Investment Law earlier, but I find it useful to repeat that the sub-article that allowed foreign companies to acquire property was revoked by the Constitutional Court.

This decision was made in March 2008 and published on April 16. It will come into force after six months following the publication of the court decision.

This means that the annulment will go into effect on Oct. 17 and that companies formed under the Foreign Direct Investment Law will be able to acquire property until this date.

Land Registry Law Article 35, Sub-clause 7, was revoked on Jan. 16. The court granted a grace period of three months, but no legislation was made within this three-month period.

Having nothing better to do, the Ministry of Public Works and Housing published a decree on April 14 and froze all pending applications by foreign persons for property acquisition.

New legislation

A new law (No. 5782) was enacted by Parliament on July 3 to regulate property acquisition by foreign persons. This new law regulates Article 35/7 of the Land Registry Law, which was revoked by the Constitutional Court. The law also regulates the pending Article 36, which was revoked earlier.

Limitations introduced by this new law have three main sections:

The first limitation is to the extent of the property which can be acquired by a foreign person. My remark would be that no new regulations have been made to the revoked Article 35/1, which authorizes the Cabinet to increase the maximum volume of 2.5 acres of property to 30 acres.

This matter is pending and means that the extent of the property which can be acquired by a foreign person in Turkey is still limited to 2.5 acres per person. Parliament has kept the limitation per person untouched.

The second limitation is to the surface area of the land which can be acquired by a foreign real person. The new law has set up the limitation in a pro rata way against foreigners.

In earlier legislation, the maximum area of land which could be sold to foreigners was limited to 0.5 percent of the total surface area of the city the property is in.

The new legislation has changed this limitation to: a) the central counties and other counties b) 10 percent of the applicable and planned zoning plan of the central county or other counties.

The third limitation is based on the limitation of the objectives of a company formed in Turkey by foreign investors.

Article 36 (as amended) stipulates that a Turkish company owned by a foreign investor is allowed to acquire property as long as the acquisition falls within the scope of the company's objectives cited in its articles of association. One should note that drafting the articles of association is now very important for foreign investors.

This limitation shall also apply to a Turkish company which owns property and is changed into a Turkish company operated by foreign investors through a company merger or acquisition (M&A).

If the foreign investor Turkish company is dissolved and if the foreign shareholders intend to acquire the company's properties after the dissolution, the real estate shall again be subject to Article 35 (as amended by law No. 5287) of Law No. 2644.

Many professionals comment that Law No. 5782 fixes annulments in both the Foreign Direct Investment Law and the Land Registry Law. In my opinion, the regulation does not really fix the revoked sections of the Foreign Direct Investment Law just yet.

Companies formed under the Foreign Direct Investment Law were treated as Turkish companies and could acquire real estate property freely. Under the new law, authorities shall have the jurisdiction to inspect if the real estate investment of a foreign investor Turkish company is in compliance with the objectives of the company.

Authorities have not yet released any communiqués or regulations on how the amended articles will be applied.