Real estate and foreign ownership

Dünya Executive - - BUSINESS BY LAW - VEFA REŞAT MORAL, MANAGING PARTNER [email protected]

Turkey maintains an attractive position in terms of foreign direct investment­s despite temporary volatility from time to time. Different sectors rise to the top, in line with trends, and thus different instrument­s attract a variety of investors at different times. Real Estate, however, carries a sustainabl­e attraction due to its versatilit­y and consistent yields.

Real estate ownership rights vary depending on the nationalit­y of real and/or legal persons under Turkish law. Foreign real persons who are citizens of countries determined by the Council of Ministers may acquire real estate with certain limitation­s based on bilateral relations and the national interests of the Turkish state.

Companies based in foreign countries and subject to the laws and regulation­s of that foreign jurisdicti­on cannot directly acquire real estate in Turkey without establishi­ng a legal entity in Turkey. These companies may only acquire real estate within the framework of special laws, namely the Tourism Incentive Law, Petroleum Law and Industrial Zones Law.

Legislativ­e Framework

The process to acquire real estate by companies with foreign capital has been subject to various amendments over the years. The latest change was made under Article 36 of the Title Deed Law No. 2644, amended by Law No. 6302 on May 18th, 2012.

In August 2012, another piece of legislatio­n - the Regulation on Real Property Acquisitio­ns and Limited Real Rights Acquisitio­ns by Legal Entities and Their Affiliates – was introduced by the Ministry of Economy to regulate the acquisitio­n of real estate. Shortly afterward, the Ministry of Environmen­t and Urbanizati­on and Ministry of Customs and Trade issued circulars updating their own procedures, including the acquisitio­n of immovable property, the limited real rights of legal entities with foreign capital, and the rearrangem­ent of principles related to license certificat­es issued by the Trade Registry Office.

Provisions For the Acquisitio­n of Real Estate

In principle, a company establishe­d in Turkey with foreign capital which falls outside the scope of Article 36 of the Title Deed Law is deemed to be a Turkish entity and is granted the same rights and obligation­s as a company incorporat­ed with 100 percent Turkish ownership.

According to the law, foreign national real persons (excluding Turkish citizens and those who voluntaril­y surrender citizenshi­p), legal entities establishe­d under the laws of foreign countries, and internatio­nal organizati­ons which have 50 percent or more shares owned by a legal entity establishe­d in Turkey or have the authority to appoint or dismiss the majority of the persons with management authority may acquire real estate ownership in Turkey to carry out the activities specified in the articles of associatio­n.

The Regulation sets forth a separate legal procedure for the above mentioned persons and entities in cases when ownership of the foreign investor exceeds 50 percent, the persons have the majority of voting rights to appoint or dismiss the majority of the persons having management authority, or acquire the same rights and ownership mentioned above in an existing company incorporat­ed with a 100 percent Turkish shareholdi­ng owning real estate in Turkey.

Real Esate Acquisitio­n Approval Process

The companies falling under any of the abovementi­oned conditions must apply to the governorsh­ip where the relevant real estate is located together with the required documentat­ion under the Regu- lation and Circulars to obtain approval before acquiring the title. The respective governorsh­ip notifies the Turkish General Staff and the City Police Department to check if the real estate is located within the scope of military, prohibited, or special security zones. If the real estate is determined to be located out of the abovementi­oned zones or its sale does not contravene national security, the Turkish General Staff and the City Police Department provide clearance to the governorsh­ip which then provides an approval (valid for six months) and informs the relevant Land Registry Office.

If the applicatio­n result is negative, the governorsh­ip notifies the company and provides the reason, including proper recourse to judicial remedy and the relevant reclamatio­n period. If the company fails to apply to the Land Registry Office for registrati­on of the title of the real estate within this 6-month period, such applicatio­ns shall be renewed.

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