"Take Three!" on Real Property Acquisition of Foreigners

Many of the limitations regarding real property acquisitions by foreigners were removed under the amendment of Article 35 of the Title Deed Law ("Article 35") by the promulgation of Law No. 4916 back in July 2003. However, in March 2005, the Constitutional Court abolished the relevant provision of Law No. 4916 that amended Article 35. Following a long-lasting debate over the matter, Article 35 is now re-enacted by the amendment, introduced by Law No. 5444¹, to Article 35.

Unlike Law No. 4916, which removed many barriers that prevented foreigners from acquiring real property, Law No. 5444 is more rigid and cautious. Law No. 4916 stipulates that a real person of foreign nationality may acquire real property with the following qualifications:

(i) the property should be used for residential or business purposes; and

(ii) the property should be within the boundaries of the implementation zoning plans or regional development plans.

Acquisition of such real property will always be subject to the following conditions:

(i) compliance with the relevant legal restrictions;

(ii) there must be reciprocity between Turkey and the nationality of the real person acquiring real property, regarding real property acquisitions (i.e., Turkish persons must be entitled to purchase real property in the country of such foreign national); and

(iii) the total area of such real property acquisition by a real person of foreign nationality should not exceed 25,000 m2.

The reciprocity principle and compliance with legal restrictions were also the concern of Law No. 4916. However, Law No. 5444 clearly stipulates that reciprocity should be in both de jure and de facto circumstances. In other words, the foreign person’s country should allow, in actual practice, a Turkish citizen to acquire real property within his/her country.

Although this is the situation for foreign individuals, Law No. 5444 dramatically restricts real property acquisitions by foreign legal entities because it stipulates that foreign legal entities may only acquire real property in Turkey within the scope of the provisions of private laws. As of today, the so-called private laws regulating the real property acquisition of foreign companies are (i) the Tourism Incentive Law; (ii) the Law on Industrial Regions; and (iii) the Petroleum Law.

Furthermore, Law No. 5444 states that additional restrictions will be applicable to real property acquisitions by both legal entities and real persons in, amongst others, strategic regions, military zones, agricultural areas, regions having flora and fauna features and mines.

For the avoidance of doubt, we note that foreign investment companies incorporated in Turkey are not subject to any of the foregoing restrictions. According to the Foreign Direct Investment Law, foreign investors are subject to equal treatment with domestic investors and, therefore, foreign investment companies that are duly established in Turkey are not considered as foreign companies, but regarded as Turkish companies.

Finally, one of the more remarkable provisions of Law No. 5444 provides that:

"Other than foreign individuals and foreign trading companies having legal personality that are established in their countries in accordance with the laws of these countries, no one can acquire real property and/or rights in rem on real properties in Turkey."

The foregoing provision implies that, amongst others, funds, associations, organizations, cooperatives, congregations and assemblies cannot acquire real property within Turkey in any manner.

Turkey remains one of the most popular countries for real property investments. In light of the restriction on foreign legal entities’ acquisition of real property in Turkey, it is likely that foreign investors will incorporate limited liability partnerships or joint stock corporations as special purpose vehicles to acquire real property. We expect this to be the result of the amendments made to Article 35.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.