Turkey Will Revise Its Reciprocity Law to Boost Foreign Direct Investment in Real Estate

In 2002, Turkey opened its real estate market to foreign nationals. Prior to 2002, acquisition of real estate in Turkey by foreign nationals was not permitted. When the government passed the bill in 2002 allowing foreign nationals to acquire property in Turkey, necessary ticks and checks that should have been in place were not implemented.

It gave rights to most foreign nationals to purchase property in pretty much all areas of Turkey with very little restriction as to region and size, including areas of national importance and cultural heritage. The government came under a lot of pressure in the years leading up to 2006, mainly by opposition voices. These voices, it could be argued, were not all biased either.

The existing law resulted in Turkey’s neighbours purchasing land in Eastern and South Eastern Turkey around Turkey’s water and energy reserves from mainly farmers, who could easily be persuaded to sell agricultural and non agricultural land at well below market value. Turkish government found this not to be in best national interests of the country and suspended the law allowing foreign nationals to purchase in Turkey. They sent some confusing messages to the global market, however, the revised law was later published in 2007 with restrictions on foreign nationals purchasing property in Turkey.

The current law allows most foreign nationals to buy real estate in Turkey except for nationals of those countries, where Turks can’t buy real estate. This is mainly Middle Eastern countries, some ex-Soviet republics, including Turkic Republics of Russia. In addition, current law imposes some restrictions as to where and how much land foreign nationals can buy.

The size restriction is pretty generous, close to twenty thousand square meters, therefore most Turkish holiday home buyers need not worry about that. However, some larger scale investors would need to set up a limited company in Turkey (foreign capital Turkish company) so as to purchase such large lots of land in Turkey. The current law also prevents foreign nationals from purchasing land and property in rural areas in Turkey, this is outside Town municipalities, townships. In other words, most agricultural land is beyond limits for foreign nationals. Similar to size restriction, a foreign national can purchase via a Turkish limited company, This is legal and indeed suitable for large-scale investors, who will use the land and property for commercial purposes.

The new revised law to be published in early 2012, will do away with reciprocity law. This will have no implications for EU, US, Canada nationals and a few others, where Turkish citizens can purchase real estate, however, it will have major implications for most Middle Eastern nationals, who can not purchase in Turkey. This, of course, will have an indirect impact on other investors too. Middle East has become a major market for Turkish real estate.

Istanbul apartments, Istanbul hotels and land in Istanbul in particular is exceptionally appealing to the better of Middle Eastern buyer. The better off Middle Eastern real estate investor, who traditionally would focus on New York, Paris and London have now added Istanbul on to their real estate shopping list. The current restriction discourages most of them, however, government statistics show that with the revised law there will be a major gold-rush for property in Turkey from the Middle East. Istanbul will attract majority of the investment for sure, however, coastal resorts are also under the lens of the Middle Eastern lifestyle seekers, who find it difficult to achieve the social structure and way of life in their home countries.

Turkey property investors should get in before prices of prime real estate in Istanbul and coastal resorts such as Bodrum, Kalkan, Gocek increase sharply due to demand from the Middle Eastern like Londoners for sure have experienced in central London since 1980’s. The same trend is about to hit Istanbul and few other resorts in Turkey.