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Legal ReviewIN THE LIGHT OF RECENT LEGAL AMENDMENTS ON REAL-ESTATE ACQUSITIONS IN TURKEY BY FOREIGNERS

Şubat 24, 2015by admin

The Law on Amendments on Land Register and Cadastral Law (Act No 6302, dated 3.5.2012) introduced significant amendments for real-estate acquisitions by foreigners. By this law, the 35th and 36th articles of the Land Register and Cadastral Law (“Law”) have been amended.
Initially, some of the previous requirements had been cancelled. However, by the amendment of the Law, some limitations regarding the neighboring countries have been introduced. Presently, the Law enables the 183 countries’ citizens to acquire real-estate in Turkey without “reciprocity clause”. The main reason behind this amendment is to open Turkey’s lands to foreign investments since interests for real estate investments are high.

The implementation principles shall be indicated by the list that is to be determined by the Council of Ministers (Article 35, para.1). By the said list, the number of countries which are entitled to acquire real-estate without reciprocity clause raised from 53 to 183.

The most notable amendment in the Law is abolishment of the reciprocity clause. As a result, a foreigner may acquire a real-estate in Turkey but it is possible that a Turkish citizen may not acquire a real-estate in the foreigner’s home country.

The reciprocity principle means, utilization of some rights in a foreign country by a citizen depends on the citizen of the said foreigner country can utilize the same rights in the country. Reciprocity may arise from treaty between countries (diplomatic), law or de-facto implementation. According to this principle, it is essential to entitle Turkish Republic citizens to the same rights in that foreigner country, whose citizen are entitled to the same rights in Turkey. For instance, if a country entitles its own citizens and Turkish citizens to house property rights, the citizens of the said country shall only utilize this right in Turkey and cannot acquire land property.(1)

With this amendment, a limitation related to quantity of real-estate acquisitions by foreigners is set forth. Accordingly, total area of real-estates and limited real rights acquired by foreign persons cannot exceed 10% of land that is subject to private ownership in commune and 30 hectare in Turkey. On the other hand, the Council of Ministers is authorized to double this amount. Before the amendment, the total amount of real-estate area could not be exceeded 2.5 hectare.

Besides, if a real-estate is in the military areas, acquisition depends on approval of the General Staff. Likewise if a real estate is in the private security areas acquisition depends on approval of the related governorship.

Concerning the real-estate acquisitions by incorporated companies established by the law of their own countries;

According to 35th article para.2 of the Law, incorporated companies established by the laws of their own countries can only acquire real-estate and limited real rights pursuant to special laws (the Law for the Encouragement of Tourism numbered 2634, the Law on Industrial Zones numbered 4737, the Petroleum Law numbered 6326), and companies apart from these cannot acquire real-estate or limited real rights.

However, regarding hypothec the restrictions in this provision shall not be implemented. In other words, incorporated companies established by the laws of their own countries and foreign persons may institute hypothec on their behalf in Turkey.

Concerning the foreign-capitalized companies established in Turkey;

In accordance with the 36th article of the Law, in case a company established in Turkey is foreign-capitalized; if foreign person, foreign legal entity or international institution owns 50% or more of shares of this company or holds the right to assign or dismiss majority of members of board of directors, even if it is established in Turkey, it may only acquire and exercise real-estate or limited real rights if the related activity had been stipulated in the articles of association.

The said article indicates that the same conditions are valid for a company established in Turkey but 50% or more of ultimate percentage of its shares are held by foreign real person or legal entity that holds 50% or more shares or the right to assign or dismiss the majority of board of directors. To obtain 50% or more of ultimate percentage of shares may occur when a foreign investor directly or indirectly acquires shares of company which owns real-estate or in the companies with foreign-capital which owns real-estate; ratio of the shares held by foreign investor reaches %50 or more. It means that, these types of companies may acquire real-estates or limited real rights in the context of activity areas stipulated in article of associations as well. Issues reserved from these restrictions stated in the Ministry of Environment and Urban Planning Circular numbered 1735 are as follows;

1. Hypothec,
2. In the real-estate acquisitions arising from liquidation of hypothec process,
3. In the real-estate or limited real right transfers arising from corporate mergers and acquisitions,
4. In real-estate or limited real right acquisitions on special investment zones such as organized industrial zones, industrial zones, technology development zones, free trade zones and in acquisitions done by banks as a result of transactions deemed as credit according to the Bank Law numbered 5411 dated 19.10.2005 on condition of continuing the obligation to dispose in a period according to related legislation and during the process of debt this provision shall not be implemented.(2) Transactions in this context shall be concluded by Directorate of Land Registry since the limitations in the 35th and 36th articles are not required.
Same circular states that the principles related to authorization certificate prepared by the Register of Commerce are re-regulated by the Ministry of Customs and Trade General Directorate of Domestic Trade. Accordingly, a clause must be provided in an authorization certificate stating whether a foreign-capital company established in Turkey falls in the context of regulation. The Directorate of Land Registry shall act in accordance with this clause. Thus, a foreign capital company which is decided to be “out of context” may acquire real-estate according to the same provision implemented to domestic-capital companies, while real-estate acquisitions by companies decided to be “in the context” shall be performed pursuant to “By-Law Related to Real-Estate and Limited Real Right Acquisitions by Companies and Associations in the context of 36th Article of the Land Register Law numbered 2644” (3)

Situations that the applications shall be denied without any consideration;

Situations that the Directorate of Land Registry denies the application without any consideration are stated in the Ministry of Environment and Urban Planning Circular numbered 1734. Consequently; legal entities apart from foreign real persons and companies established by the laws of their own countries (e.g. foundations, organizations, cooperatives, ensembles, communities or companies without legal entity etc.) cannot acquire real-estate or limited real rights on their behalf. Thus, applications in this regard shall be directly denied by the Directorate of Land Registry.

According to the same regulation, foreigners can only acquire real-estates and limited real rights up to 30 hectare. Any application exceeding this amount will be denied by the Directorate of Land Registry.

Considering unconstructed real-estates;

According to the 35th article of the Law, foreigners who are willing to construct a structure on a real-estate must submit their projects to the related Ministry within 2 years. The Ministry of Environment and Urban Planning Circular numbered 1734 sets forth that upon approval of the related Ministry the statement of “… project is granted by … Municipality. Date, Number” shall be inserted to the declaration section of the real-estate.

The said circular also states that, in case there is no such statement or the project have not been carried out in 2 years from the acquisition, the Directorate of Land Registry notifies the related Ministry to liquidate the real-estate or limited real right.

General procedure to be performed by the Directorate of Land Registry for real-estate or limited real right acquisitions by foreigners with regards to the Ministry of Environment and Urban Planning Circular numbered 1734;

1. Examination of acquisition conditions in relation to nationality of applicants.
2. Inquiring about whether the real-estate is in the Forbidden Military Zones, the Military Security Zones and the strategic zones.
3. Obtaining foreigners’ undertakings about limitation of 30 hectare as stipulated in the Circular.
In case real-estates and limited real rights are acquired contrary to the Law or utilized contrary to purpose of acquisition, except to the extend required by law, they will be liquidated pursuant to related the Ministry of Environment and Urban Planning Circular.

Considering the people who are natural born Turkish citizen and ceased to be Turkish citizenship by consent;

By the Ministry of Environment and Urban Planning Circular numbered 1734 natural born Turkish citizens who ceased their Turkish citizenship by consent and their children processed with them are exempted from restrictions stated in the Law. Thus, Turkish origin people who are living in foreign countries and acquired citizenship of the foreign countries, especially in Germany, are not subjected to abovementioned restrictions. Applications from mentioned people are concluded by the Directorate of Land Registry.

In conclusion; reciprocity principle which has been stated in the Law since 1934 has been abolished by the Law on Amendments on Land Register and Cadastral Law (Act No 6302, dated 3.5.2012) and Turkish lands are enabled to be acquired by 183 country citizens without any conditions but 30 hectare limit.

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(1) Eksi Nuray, Yabancıların Türkiye’deki Taşınmaz Mallar Üzerindeki Hakları, Arıkan Yayınları 2006, p. 39, 40
(2) In that vein please see the Ministry of Environment and Urban Planning Circular Related to Real-Estate and Limited Real Right Acquisitions by Foreign Persons, Circular No 1734, 2012/12 dated 06.08.2012.
(3) In that vein please see the Ministry of Environment and Urban Planning Circular Related to Real-Estate and Limited Real Right Acquisitions by Foreign-Capital Companies, Circular No 1735, 2012/13, and dated 17.09.2012.