Foreigners can acquire real property in Turkey by employing either of the following two methods: They can establish a company in Turkey (i.e. by incorporating a company or acquiring shares of an already established Turkish company) and then acquire the real property through that company. Or alternatively, foreigners can acquire real property themselves (i.e. in their own names) or through their companies established outside of Turkey.
First method is considered as a foreign direct investment vehicle (“DFI”) and as such is regulated under Direct Foreign Investment Law No. 4875 (“DFI Law”). DFIs can acquire real property in accordance with Article 36 of Land Registry Law No. 2644 (“Land Registry Law”).
DFI Law does not apply to foreigners using the second method, who are nevertheless entitled to acquire real property in accordance with Article 35 of Land Registry Law.
Overview of DFI Law
i. Equal treatment
Foreign investors are equally treated with Turkish investors and are subject to the same requirements with Turkish investors. There are no limitations with regard to the percentage of shares held by a foreign shareholder, except for certain limitations for specific sectors, such as telecommunications.
ii. Prohibition of expropriation
DFIs cannot be expropriated unless (i) required by public interest, and (ii) an appropriate consideration is paid to the investor.
iii. Right to transfer investment returns freely
DFIs can freely transfer, through banks and financial institutions in Turkey, profits, dividends, royalties, sales returns and remuneration, principal and interest payments pertaining to their foreign loans to their bank accounts outside of Turkey.
iv. Right to employ foreign personnel
Rules applying to work permits to foreign personnel employed by a DFI in Turkey are mainly regulated in Law on Work Permits of Foreigners No.4817 . Ministry of Labor and Social Security is entitled to issue work permit to those foreign personnel satisfying the conditions laid out under the said legislation.
v. Dispute resolution
DFIs can choose to bring disputes arising from their investments in Turkey before local courts, local or international arbitration institutions or other dispute resolution methods provided that (i) conditions laid out in other laws for choosing arbitration or other dispute resolution methods are satisfied, and (ii) parties agree on the arbitration or other dispute resolution mechanism.
vi. Right to acquire real property
DFIs can acquire ownership or limited rights in rem in accordance with Article 36 of the Land Registry Law, as explained below.
Real Estate Acquisition by DFIs
According to Article 36 of the Land Registry Law, DFIs in which foreign real persons or companies hold at least 50% of the total shares or the rights to appoint and remove the majority of directors, is permitted to acquire ownership or limited rights in rem on real property in Turkey only to carry out the activities that are specified in their articles of association.
Acquisition by these DFIs of ownership and limited rights in rem on real property (i) is subject to the approval of the commanderships which are authorized by the General Staff, if such property is in military forbidden zone, military security zone or governmental security zone, and (ii) is subject to the local Governorate’s approval if the real property is located in a private security zone.
Regulation on the Real property Acquisition of DFIs Within the Scope of Article 36 of Land Registry Law requires Governors to establish a commission, which is entitled to review whether real properties acquired by DFIs are used for the purposes set out in their articles of association. If the commission founds out that the real property is not used for the activities in the articles of association of the DFI, it notifies the relevant DFI to that effect. If the misuse of the real property continues upon such notification, the commission is entitled to require the DFI to sell or otherwise dispose of the real property within a time period of six months, which can further be extended to a year. If the DFI so notified by the commission continues its breach and fails to dispose of the real property within the given time period, the commission is entitled to liquidate the real property in question.
Above rules do not apply to DFIs in which foreign real persons or companies hold less than 50% of the total shares and do not hold the right to appoint or remove majority of the directors. This type of DFIs can acquire ownership and limited rights in rem on real property with the same conditions as Turkish companies.
Real Estate Acquisition by Foreign Real Persons
Council of Ministers is authorized to determine the countries, nationals of which are authorized to acquire real property in Turkey, in line of international relations and state interests. Foreign real persons who are nationals of the countries determined by the Council of Ministers can acquire ownership rights and other rights in rem subject to the legal restrictions . Council of Ministers is entitled to limit, restrict, and partially or fully prohibit acquisitions of real property and limited rights in rem by foreign real persons and legal entities in Turkey if it deems necessary to do so in view of international relations and state interests.
There are certain restrictions in terms of the total area one foreigner can acquire. The total area of the real property and the limited rights in rem, which is continuing and independent, that a foreign real person is permitted to acquire across the country, is limited to 30 hectares. Council of Ministers is authorized to increase this amount up to 60 hectares per person. Notwithstanding the above, the total area of the real property and limited rights in rem that can be acquired by foreign real persons in one district cannot exceed 10 per cent of the total area of private properties in such district. However, the restrictions in terms of total area do not apply when establishing mortgage in favor of foreign real persons. Thus, foreign real persons have equal standing with Turkish citizens and are not subject to any limitations in case of mortgages established in favor of them.
If the real property acquired is a vacant property, foreign real person who is willing to build a structure on such real property should submit the project that will be developed on that real property for the approval of the Ministry within two years.
Certain restrictions apply if the real property is found to be in military forbidden zones, military security zones and private security zones.
Real Estate Acquisition by Foreign Legal Persons
Companies having legal personality incorporated in accordance with laws of foreign countries can only acquire real property or right in rem according to the provisions of special laws, e.g. Turkish Petroleum Law, Law on Industrial Zones and Tourism Incentives Law.
It is worth mentioning that any legal entity apart from companies established in other countries such as foundations, organizations, associations or similar entities, cannot acquire real property or rights in rem.
Companies established abroad have equal standing with Turkish companies before the law in terms of establishing mortgage on their behalf as in the case of foreign real persons. Consequently, limitations for foreign companies do not apply for mortgage rights established in favor of them.
Rules regarding vacant real property also apply for foreign legal persons and thus, the project to be developed on that immovable in relation to constructing a structure should be submitted to the approval of the Ministry within two years. Likewise, certain restrictions apply if the real property is found to be in military forbidden zones, military security zones and private security zones.