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THE LAW OFFICE: New law restricts real estate for foreigners

| 9/13/2008 12:00:00 AM | By Gary Lachman

Earlier this spring, the Turkish Constitutional Court rendered a decision that the law permitting the purchase of real estate by foreigners would be canceled in October if Parliament didn't enact a

Earlier this spring, the Turkish Constitutional Court rendered a decision that the law permitting the purchase of real estate by foreigners would be canceled in October if Parliament didn't enact a new, less ambiguous and more restrictive law. Specifically, the Court didn't like the fact that the Council of Ministers could, in its own discretion, increase the maximum allowable amount of land acquired by a foreigner. The Court felt that this gave to much power to the ministers. The threat of a general prohibition against foreign real estate investment and ownership rocked the local property markets.An uncomfortable period of uncertainty followed the annulment decisions of the Constitutional Court. In response to the Court's decisions, the Parliament approved a law on July 3, 2008 that amended certain provisions of the Title Deed Law to fix the problem and stabilize the uneasy real estate sector. While a clear limitation on foreign individual property acquisition was an important component of the new law, the most restrictive and detailed new regulations affect foreign owned companies more than individuals. Restrictions regarding foreign companies will be discussed in a subsequent article.Article 35 of the Title Deed Law regulates the acquisition of real property with respect to foreigners and foreign companies incorporated abroad. Article 36 regulates the acquisition of real property by foreign capital companies incorporated in Turkey. A foreign capital company is an entity established in Turkey but partially or entirely owned by foreign individuals or entities. The rights of foreign capital companies were previously regulated by the Direct Foreign Investment Law that was annulled by the decision of the Court. The Amending Law was published in the Official Gazette and came into effect as of July 15, 2008.

Restrictions and reciprocity

Article 35 of the Title Deed Law entitles foreigners to acquire real property in Turkey and within the boundaries of a municipality provided that principals of international reciprocity and certain legal restrictions are observed. However, under this new law, a foreigner can only acquire up to 2.5 hectares (25,000 square meters or 6.18 acres) of real property per province in Turkey. A like amount of property can be purchased in multiple provinces, but the most a foreigner can own in any one area is limited. Of course, the property may only be acquired for business or residential purposes as allowed under the local zoning plans.  Article 35 of the Title Deed Law further restricts foreigner acquisition of real property to a total of 10 percent of the land existing within the borders of the zoning plans. The Council of Ministers is entitled to decrease, but not increase, this percentage by taking into consideration the infrastructure, economy, energy, environment, agriculture, and security precautions. This ability to decrease but not increase was the major departure from the previous law that has an impact on individuals.The Council of Ministers is authorized to determine the areas for public interest or security reasons where foreigners and foreign companies incorporated abroad cannot acquire any real property that must be protected for their unique religious or cultural features such as irrigation, energy production, agriculture, and mining. Please note that, these restrictions do not apply to mortgages of real property in Turkey in favor of foreigners and foreign companies incorporated abroad.  

Note: A special counsel on foreign law to one of Turkey's major law firms, Gary Lachman has also been a homebuilder, real estate developer and government official. At the U.S. State Department, he led the process of selecting and acquiring sites for American embassies and consulates in over 40 countries.  © 2008 Gary S. Lachman

 

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