Property market in Turkey is likely to rise due to a number of projects which will have a positive effect in the future

Turkey, the meeting point of two continents - Europe and Asia - is a wonderful country which is surrounded by sea on three sides: the Aegean, Black Sea, Mediterranean and the Sea of Marmara. Turkey has stunning coastal locations and its land is known to have been the cradle of the oldest civilisations and religions. Furthermore, life in Turkey is easy and Turkey is one of the few OECD countries where the cost of living is relatively low. The Turkish people are warm and hospitable to all foreigners. You can find a very wide range of delicious food and the Turkish cuisine is one of oldest and richest cuisines in the world. Turkey has so many appealing features that it is almost impossible to name them all: the sun; beautiful nature; nice beaches; exciting outdoor and entertainment activities; winter sports including skiing; water sports; modern leisure facilities including shopping malls; not to mention an abundance of sightseeing and historical places.

If you are looking to buy a property at a very reasonable price, which you can use yourself for regular holidays and which you can also rent out to get some income, then Turkey is an obvious choice. It is a country where the summer is nice and long, stretching from March to November, and where there are many tourist attractions.

In 2005, more than 21 million tourists visited Turkey. This figure is expected to double within a few years. Moreover, the property market in Turkey is likely to rise due to a number of projects which will have a positive effect in the future. These include the creation of many more convention and conference facilities, golf courses and health tourism centres; the fact that Turkey has held international sports events such as the Formula 1 racing and the UEFA Champions League Cup Final in 2005; and the fact that Turkey started full EU-membership negotiations in October 2005.

Since property prices in other Mediterranean locations are comparatively very high and those markets are now nearing saturation point, Turkey is becoming an extremely popular destination in which to buy a property. There is a wide choice of properties on the market in all areas, which range from renovated old houses to newly built luxury villas. There are also very quiet, environmentally clean, secure and cheap places which are ideal for elderly people.

As a result, the interest of foreigners in buying property in Turkey has been growing, both for investment and residential purposes. As of July 7, 2006, the number of foreign nationals owning property in Turkey reached 61,803, 22.7 per cent of whom are British. Compared to July 2003, the number of British and foreign nationals who own property in Turkey has increased by 373% and 64% respectively.

Up until now there has been no universal mortgage system in Turkey. However, a mortgage bill is on the agenda of the Parliament and expected to be enacted by the end of this year or in the first quarter of next year.

Taking into account the abovementioned advantages and the expected future developments in the property market in Turkey, property investments are highly likely to yield substantial gains when an individual investor takes the necessary steps.

Legal framework for property ownership

The law amending article 35 of the Title Deeds Law, which allows foreigners to buy property in Turkey, was enacted and published in the Official Gazette on January 7, 2006. This new law envisages the following:

Who can buy?

Foreign individuals and foreign commercial companies from countries with whom there exist legal and de facto reciprocities in relation to property purchase can buy residential or commercial properties in zones covered by an Implementary Development Plan (‘Uygulama Imar Plani’ in Turkish) or a Local Development Plan (‘Mevzii Imar Plani’ in Turkish).

However, those companies which are legal entities can only buy property provided that they operate pursuant to the special laws such as the Tourism Encouragement Law, the Petroleum Law and the Industrial Zones Law etc.

What are the size limits?

The maximum size of total land/property that can be purchased by a foreign individual cannot be more than 25,000 square metres. The Council of Ministers is authorised to increase this threshold to 300,000 square metres per person.

The maximum size of (cumulative) lands that can be purchased by foreign individuals in a province shall be capped by the Council of Ministers and this cap cannot be more than 0.5 per cent of the total area of the whole province.

Forbidden zones

Foreign nationals and foreign commercial companies are not allowed to buy property in the military, strategic and security zones of Turkey. In other words, TAPU (Land Registry) offices are supposed to check whether a property that is being purchased by a foreign national is within one of those forbidden zones or not.

The Council of Ministers is also authorised to determine specific zones to be preserved such as lands which are strategically very important in terms of energy, agriculture, mining, history, cultural, biological flora, and national security. Thus, foreign nationals and foreign commercial companies will not be able to buy property in those specially preserved zones.

Conveyancing process

The conveyancing process is very easy and simple. The procedure for foreigners is the same as for Turkish citizens except that a search is required to check for restrictions for the above-mentioned military and security zones. Once a sale has been agreed with the owner, an application has to be made to the local Tapu (Land Registry) Office. The local Tapu Office then carries out a search for the above-mentioned restriction through correspondence with the military authorities in the area. As soon as the search is completed, the Land Registry Office then transfers the title and issues the new deed.

According to the legal framework, both Turkish citizens and foreign owners have equal property ownership rights. The acquired property may be resold or rented out and the proceeds of the sale or the rental income may be transferred out of Turkey freely.

Although a sale and acquisition contract is not compulsory according to current regulations, and mutual declaration of both the buyer and seller to the Tapu Office is enough to carry out the transfer of ownership, having a robust sale and acquisition contract will allow you to protect yourself from some potential risks which may stem from the vendor or their agents.

Even though it is not compulsory to hire a solicitor to acquire a property in Turkey, since there are some transactions for buying a property and some steps are very important, as a careful consumer you are advised to consult a solicitor who can provide legal and financial advice about all issues including a power of attorney. Moreover, a good solicitor can undertake all searches and checks for you to secure your rights. In addition, please bear in mind that an authorised solicitor is not permitted to breach the laws and regulations.

In principle, you must be present and sign the related paperwork in the Tapu Office during the conveyancing process; however, you can appoint someone, who could be a solicitor, to deal with all necessary transactions by means of a legal document called “Power of Attorney” for buying property. This should be done in the presence of a Notary-Public. You may revoke the Power of Attorney at any time, in the same way in which it was issued.

Tax Issues

Both the buyer and the vendor have to pay a real estate sale-and-acquisition levy of 1.5 per cent (similar to stamp duty), based on the declared value of the asset. It is collected prior to the transfer of ownership at the TAPU office.

There is also a real estate tax (similar to the Council tax in the UK), again, based on the declared value of the asset and collected by the local municipalities, at the rate of 0.1 per cent for residential properties and 0.3 per cent for building land annually.

Please bear in mind that you must declare the actual purchasing price. Otherwise, you can face severe penalties and experience some problems in the future.

If you sell your property in the four year period following the acquisition date, you shall be subject to personal income tax based on the difference between the selling price and the acquisition price (inflation-adjusted, if inflation exceeds 10 per cent). For sales by individuals after the 4-year-period following the purchase, no personal income tax is charged on the gains.

If you rent out your property and earn rental income, you are liable to pay a personal income tax starting from 15% (some amount of exemption applies annually).

An agreement between the United Kingdom of Great Britain and Northern Ireland and the Republic of Turkey for the Avoidance of Double Taxation was signed on May 9, 1986.

Economic Outlook

As a result of prudent fiscal policies and structural reforms, Turkey has made remarkable progress in the past four years, with output growth reaching over 30 per cent on a cumulative basis and inflation declining from an average of 77.5 per cent in the 1990s to 7.7 per cent at the end of 2005. In 2004 the inflation rate was brought down to single figures for the first time in 30 years. Having a GDP of approximately USD 344 billion, the Turkish economy ranked as the sixteenth largest economy among the 30 OECD member countries. Privatisation proceeds in 2005 surpassed the total privatisation revenues obtained in the last 20 years. Net FDI inflows reached US$9.7 billion in 2005, compared to an average of US$1 billion per year in 1990-2004.

For further information you are kindly recommended to visit our web site at www.turkisheconomy.org.uk

Biography

Aziz Dogan is First Economic Counsellor to the Turkish Embassy in London. He is a graduate of the Faculty of Political Science in Ankara. Prior to his London post, he has been working in the Turkish Treasury and before that served as the Economic and Commercial Counsellor to the Turkish Embassy in Riyadh, Saudi Arabia.