The Legal 500

Legislation regarding purchasing of real estate in Turkey by foreign investments have changed many times over the past years. Supreme Court decisions, international or political developments and economic necessities are some of the pushing factors of such amendments.

In the past decade purchasing property in Turkey became very popular through holiday home owners and investors worldwide. The first time that it was permitted to foreign buyers to purchase real estate in Turkey was in the year of 1934 with the Property Act. At the present day the real estate market in Turkey is developing and becoming one of the prominent markets among the Mediterranean countries. The main purpose of this brief article is to explore the legal structure and the procedure of purchasing real estate in Turkey for foreigner. 

The lease – the leading option for real property investors in Turkey – has a strong competitor these days: the right of construction. Factors such as the nature of the site, the purpose of the investment and the investment fund help investors to determine the appropriate transaction type. But apart from assessing these commercial and financial concerns, a comparison of the respective benefits of the lease agreement (right in personam) and right of construction agreement (right in rem) from a legal perspective can help in making the right investment, in the right place, with the right kind of real estate transaction.

The Turkish legal system is a civil code system. Parties may obtain an injunction from the courts upon depositing sufficient collateral, but the injunction can be lifted during the hearings upon a reasonable claim from a counterparty. Following the establishment of an injunction over real estate, such real estate cannot be transferred until the lawsuit is concluded or the injunction lifted. Parties are theoretically free to enter into oral contracts; however, evidence of such relationship may be difficult to establish before the courts since the rule of written evidence is applicable under Turkish Civil Procedure Code and therefore, oral contracts are not practical. Moreover, in certain situations, execution of a written contract is a legal requirement such as in real estate sales.

This article contains information on the latest regulatory developments in the Turkish real estate market, in such areas as public tenders and real estate investment trusts. In particular, we wish to bring you up to date on developments that have occurred between December 2008 and March 2009.

The acquisition of a real property in Turkey by a Turkish company with a foreign shareholding (a Foreign-Owned Company) was thrown into confusion by a decision of the Turkish Constitutional Court on 11 March 2008. This decision repealed article 3(d) of the Foreign Direct Investments Law No. 4875, which allowed a Foreign-Owned Company to buy real property in Turkey on the same basis as Turkish companies with a Turkish shareholding. The decision became effective on 16 October 2008.

For decades, real estate has been one of the traditional investments for Turkish individuals and corporations. Investors either financed investment themselves or borrowed from relatives to purchase property. Historically, only 3% of real estate investment was financed through finance institutions. High interest rates and a lack of long-term loan options from banks led investors, as well as developers and constructors, to create innovative financing options, such as leasing, building rights, construction in exchange for flats, promises to sell, instalment property contracts and joint ventures.

Legislation regulating acquisition of real property by Turkish companies with foreign capital was amended by Law No. 5782 and dated 3 July 2008 after the cancelation of Article 3 (d) of the Foreign Direct Investments Law by the Constitutional Court.

The real estate acquisition by foreign real and legal persons in Turkey has been regulated under the Land Registry Law dated 22.12.1934 numbered 2644. The Land Registry Law and the Law on Direct Foreign Investments which used to compose provisions with regards to the real estate acquisition by foreign real and legal persons in Turkey were undergoing significant restructuring due to the annulments by the Constitutional Court of certain provisions in the relevant pieces of the legislations. The annulments were due to the Constitutional Court's broad assessments about whether the limits of these rights provide a balance between the risks and benefits of allowing foreigners to purchase real estate property in Turkey. Consequently, the Law No.5782 concerning the Amendment of the Land Registry Law, was announced in the Official Gazette of 3/7/2008. Significantly, the Constitutional Court has also annulled paragraph (d) of Article 3 of Law on Direct Foreign Investments with no. 4875, which is in parallel with the annulled articles of the Land Registry Law and the reason for this annulment was publicly announced in the Official Gazette of 16.04.2008 and consequently it was resolved that the annulment would become effective 6 months after the date of announcement.

The Regulation Regarding Acquisition of Real Property by Companies with Foreign Capital was published on 12 November 2008. However, contrary to expectations, it seems that the Regulation will, in practice, increase the problems faced lately.

LAW NUMBERED 5782 REGARDING THE AMENDMENT OF THE LAND REGISTRY LAW PASSED AS A RESULT OF THE ANNULMENT DECISION OF THE CONSTITUTIONAL COURT AND THE LEGAL STATUS REGARDING FOREIGNER’S ACQUISITION OF REAL ESTATE UNDER THIS LAW

PASSED AS A RESULT OF THE ANNULMENT DECISION OF THE CONSTITUTIONAL COURT AND THE LEGAL STATUS REGARDING FOREIGNER’S ACQUISITION OF REAL ESTATE UNDER THIS LAW

The Turkish real estate market has experienced explosive growth over the past few years. Construction of numerous shopping malls and multi-family residential developments and planned communities has made condominium ownership one of the most important practice areas of real estate law. Those familiar with the concept of condominiums, with general and limited common elements and with strata title regimes, will find both long-established, as well as unique, provisions in Turkey's new condominium law.