September 2008
MOST RECENT DEVELOPMENTS IN SALE OF REAL ESTATE TO FOREIGN CITIZENS
I - Introduction:
Stability and growth reached in the Turkish economy has attired attentions of foreign investors and foreign real persons to Turkish real estate market. The fact that Turkey has been attracting foreign investment created a need for new regulations on the right to real estate of foreign citizens. There have been many amendments in many regulations regarding this issue, especially in the Deed Law, and some part of these regulations has been cancelled by the Constitutional Court.
For this reason provisions of the Deed Law regarding right to real estate of foreign citizens have been subject to many changes in recent years. Foreign real or legal persons who are interested in buying a real estate in Turkey had to follow recent developments on this issue. Thus, we find it useful to summarise most recent developments in order to assist them.
II – Developments before enactment of the Law nr. 5782:
1) Constitutional Court's ruling on the article 35 of the Deed Law:
By its decision which was published in the Official Gazette on the 16.1.2008, Constitutional Court had partially cancelled paragraphs seven and eight of the article 35 of the Deed Law on the right to real estate of foreign citizens. In this decision of the Constitutional Court, not the whole article but only the provisions on the power of Council of Ministers to increase the amount of real estate that can be acquired by foreign citizens had been cancelled.
2) Constitutional Court's ruling on the subparagraph 3/d of the Law of Direct Foreign Investment:
The need for a new regulation created by the abovementioned decision reached the peak with the Constitutional Court's decision which was published on the Official Gazette on the 16.04.2008. In this decision, the Constitutional Court has cancelled the subparagraph "d" of the article 3 of the "Law on Direct Foreign Investments" which used to regulate the right to acquire real estate of foreign investors.
According to this article, companies established or participated in by foreign investors in Turkey used to have the right to acquire real estate or limited real rights in zones open to acquisition of Turkish citizens, without being subject to the condition of reciprocity, without excluding any zones for their importance regarding national security or public services, and without any quantitative restriction. The Constitutional Court based its decision of cancellation on the observations that the right to real estate of foreign investors did not have any legal limitation, and that there were no regulation regarding transfers and using conditions of real estates. The Court also ruled that this decision would enter into effect on the 16.10.2008, aiming at protecting foreign investors until a new regulation is made by the lawmaker.
III – Amendments brought by the Law nr. 5782:
For the purpose of removing ambiguities brought by these decisions the Law nr. 5782 on “Amendments in the Deed Law” [Law 5782] has been prepared and published on the Official Gazette nr 26937 on the 15.7.2008.
1) Amendments in the article 35 of the Deed Law:
By the first article of this law, areas where foreign citizens and foreign investors cannot acquire real estate have been defined more precisely and Council of Ministers is empowered to determine these areas.
Regarding foreign real persons, it is expressly stated that "... can acquire real estate and independent and permanent real right", and thus they are not allowed to acquire real rights depending on real estate or untransferable real rights. For instance, foreign real persons will not be able to acquire right of usufruct, right of residence or superficies depending on real estate or untransferable superficies.
It is also stated that the amount of real estates which can be acquired by foreign real persons cannot exceed ten percent of the areas in applied zoning plan and piecemeal plan in cities and towns. In the cancelled provision of this article it used to be stated that the Council on Ministers was allowed to increase this amount. In the new regulation it is observed that the power of Council of Ministers is limited by decreasing this amount.
However, as this provision is set forth regarding real persons only, there is no limitation for legal persons. There is no special regulation regarding this issue.
2) The new article 36 of the Deed Law:
By the second article of the Law nr 5782, the article 36 of the Deed Law has been re-drafted. This article had been abrogated on the 19.07.2003 by the Law nr. 4916.
We may fairly say that by this new article, the subparagraph 3/d of the “Law on Direct Foreign Investments” which was cancelled by the decision of the Constitutional Court published on the 16.04.2008 has been re-regulated. This article regulates the right to acquire real estate or limited real rights of companies established or participated in by foreign investors in Turkey.
The cancelled subparagraph 3/d of the “Law on Direct Foreign Investments” titled “real estate acquisition” used to read as follows:
"Companies established or participated in by foreign investors in Turkey and which have legal personality are free to acquire real estate or limited real rights in zones open to acquisition of Turkish citizens."
It may be observed that, following the reasoning of the cancellation decision of the Constitutional Court, the new regulation is drafted in more detail.
However this new regulation contains some limitations. For instance in the article, the expression “companies which have a legal personality” results that simple companies which do not have legal personalities, such as consortiums cannot benefit from this right. The fact that the right to acquire real estate by companies depends on the condition that “they conduct their business activities set forth in the articles of association” also attires attentions.
According to the new article 36, real estates acquired in this way can be transferred to other foreign companies in Turkey and real estates owned by Turkish companies can also be transferred by acquisition of shares of the companies by a foreign company.
According to the amended article 36, in case of liquidation of the foreign company in Turkey, acquisition of real estates of the company by foreign real or legal person shareholders is subject to the conditions set forth in the article 35.
Again according to the same article, acquisition of real estates in strategic areas is subject to permission of presidency of general staff or empowered commanders, and in special security zones, it is subject to the permission of local governors.
IV – Conclusion:
This new law aimed at promoting the situation of foreign real or legal persons who could not use efficiently their right to acquire real estate since the annulment decision of the Constitutional Court. In particular, the gap created by the cancellation of the subparagraph 3/d of the “Law on Direct Foreign Investments” is aimed to be filled by the new article 36 of the “Deed Law.” Although this law regulated the right to acquire real estate by foreign persons more precisely following the reasoning of the of the cancellation decisions of the Constitutional Court, it cannot be said that it is satisfactory because of limitations it brings.
Moreover, on the 17.07.2008 the Department of Foreign Affairs of the General Directorate of Land Registry and Cadastre has issued a circular on the application of the articles 35 and 36 of the Deed Law, and sent it to local land registry offices.
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