Turkey Property Acquisition

How to proceed in property investment process?

Can foreign real persons acquire property?

Foreign real people, who are citizens of the countries that have been announced by the Council of Ministers (except for Syria, Armenia, Cuba, Israel and Cyprus) are entitled to acquire ownership rights in Turkey.

In any event, the total size of land cannot exceed 30,000 sqm for each person. In addition, foreign real people are only entitled to acquire real estate up to 10% of the total surface area of the relevant district.

In order for a foreigner to officially understand whether or not she/he can acquire a specific real property, the prospective buyer must apply to the relevant land registry office for approval. The acquisition can be performed upon the issuance of the relevant land registry’s approval.

Is there a different procedure applicable for property acquisitions performed by foreigners?

Aside from the procedure mentioned above, there are no differences between foreign real persons or Turkish citizens regarding an acquisition of property.

Is there a different tax treatment for property transactions in Turkey between Turkish taxpayers and foreigners?

In principle there is no difference between Turkish residents and non-residents for property acquisitions for taxation purposes. Foreigners are subject to the same rules with the Turkish citizens/residents.

The land registry system used in Turkey is a reliable and secure system, whereby every real estate transaction is officially registered.

Is there a difference between the procedures to be applied for office and villa or apartment/condo acquisition?

Transactions involving acquisition of office and villa or apartment/condo are subject to the same official procedures.

Can the foreign successors of the foreign property owner inherit the property?

The foreign successors can acquire real property by way of inheritance, subject to the following conditions; (i) the successor must be a citizen of the countriess that have been announced by the Council of Ministers; (ii) the real property shall not be within the borders of restricted zones (suchh as military zones, security zones, etc.) (iii) the total size off real property that will be inherited by a singlee successor shall not exceed 30.000 sqm and 10 % of the total surface area off the relevant district.

If the successor is not entitled to acquire property due to any of the above-mentioned restrictions, thee successor is obliged to sell the property to an eligible thirdd party within a maximum period of one year. Otherwise, thee property will be sold by the Ministry of Finance, and the sale price will be paid to the successor.

How to find a property: Is it necessary to use a real estate agent?

Property can be acquired through a direct transaction that is completed with the landowner or, alternatively, a real estate agent may be hired to find a suitable property satisfying the relevant requirements. Real estate agents are paid via commission if and when the transaction is completed. As per market practice, the real estate agents charge 3-4% (including VAT) of the purchase price. Such commission is usually borne equally between the buyer and the seller.

Am I paying the right price?

There are real estate appraisal companies which determine the current market value of properties. These companies can be used to understand the accuracy of the purchase price. Alternatively, real estate agents working in the neighbourhood can be visited to understand the market value of the properties within the relevant area.

How secure is the Turkish land registry system?

The land registry system used in Turkey was initially formed by the Ottoman Empire, and gradually developed into the existing system over the years. It is a reliable and secure system, whereby every piece of real estate transaction is officially registered. Land registry records are public; therefore, the rights of third parties, who acquire ownership or an interest in any form of real estate in land registry records, are respected. Beyond the official ledgers, information regarding the legal status of real properties (ownership rights, rights registered in favour of third parties, encumbrances, etc.) is also maintained in a computer system called Takbis.

Is it necessary to conduct a site survey?

Before proceeding with any real estate transaction, it is advisable to conduct a site survey to provide information regarding the legal status of the target property, and to identify any foreseeable legal risks and their effect on the use of the subject properties for the intended purpose. The main information and documentation to be evaluated in carrying out such site survey are as follows:

  • Evaluation of current ownership

Ownership details of the property should be examined prior to the transaction to ensure that the seller legally owns the property.

  • Encumbrances over the property

Title deed records of the property should be examined to determine if there are any outstanding liens, mortgages, or any other encumbrances in favour of third parties attached to the property. It should be also examined if there are any other annotated rights, such as easements, promises to sell, etc. If there are no encumbrances or annotations, the ownership of the property may be transferred without any restriction or legal risk.

  • Cadastral Records

The cadastral records of the property must be in conformity with the relevant zoning plans, and must not contain any notable or unusual information. Also, thee cadastral borders (ownership borders) of the property must match the borders of the property as indicated in the zoning plans.

  • Zoning Status of the Property

The zoning plan and plan notes must be examined before the municipality in order to identify the types of activity (such as residential, office, hotel, etc.) building can be used for.

  • Construction License and Building Utilization Permit

The construction license and building utilization permits are the main permits that must be obtained from the relevant municipalities in order to construct a new building or to carry out alterations to an existing building. The property must hold a valid construction license and building utilization permit that confirming that the building is constructed in accordance with the construction license. If the reason for the lack of an occupancy permit is an inconsistency between the completed building and the construction license, the relevant municipality may demolish the building or require it to be modified so as to conform to the construction license, and the landowner may be subject to various fines, as well. 

  • Current Physical Status of the Property

The actual status of the property and its neighbourhood should be evaluated by visiting the property. Due diligence regarding the compliance of the current physical status of the property with its original as-built projects should be carried out before entering into any agreement.

If you are to buy a building under construction, make sure that the contractor is financially reliable and legally authorised.

What are the main types of purchase agreements?

  • Purchase/Sale Agreement (Direct Acquisition)

    According to Turkish law, the sale of a property can only be completed before the relevant land registry with the attendance of both the seller and purchaser. In order to transfer the ownership, the parties must execute a standard transfer deed prepared by the relevant land registry. Acquisition of the property can be accomplished through purchase directly from the existing landlords. Real estate agents, if involved, charge a commission for their involvement in the purchase as mentioned under our response to previous question.

  • Promise to Sell Agreement

    Prior to the sale of property, the seller and purchaser may enter into a preliminary “Promise to Sell Agreement.” This is the only preliminary agreement that can be validly executed between the parties and, in order to be binding, it should be prepared by and signed before a notary public. In order to qualify for protection against third party claims, the Promise to Sell Agreement should be registered with the land registry. In the event of non-registration of the Promise to Sell Agreement, any subsequent purchase of the property by a third party acting in good faith will be valid.

What are the payment options available?

The purchase price of the property may be made cash, via wire transfer or blocked checked.

Should the acquisition of the property be done in person?

Either the purchasing party (i.e. foreign real person) or his/her legal representatives can conduct transactions regarding the acquisition of property. If acquisition transactions are carried out by way of a power of attorney, such power of attorney must be draft ed and regulated by a notary public, and must also be signed before the notary public, who, under Turkish Law, has the power to control and certify that the authorization to act on behalf of such person is being duly granted. Th e power of attorney that is to be used for the acquisition of property must include the full name and address of the legal representative(s), as well as all of the authorities granted to the legal representatives for the acquisition of the property. If the power of attorney is drafted and executed abroad, it should be notarized and apostilled. In order to be binding, the translation of such power of attorney must be notarized in Turkey.

Are there any rules regulating the right and obligations of the parties living in the same property? (Condominium Law-Management Plan)

A management plan is an agreement between condominium owners that regulates the management of the main structure and common areas. All condominium owners and their successors are bound by the provisions of the management plan.

The purpose of the management plan is to determine rights and obligations of the parties to each other, who live in the same property, and to provide rules on the management of the property concerning the purpose and method of use and the other issues related to management, such as operations, auditing, maintenance, and repair work, and to ensure the establishment and continuity of a peaceful, healthy, safe and proper working system of the property in accordance with the rules of Condominium Ownership Law.

The provisions of the management plan are valid to the extent they are in compliance with the provisions of the Condominium Ownership Law. Accordingly, condominium owners cannot add provisions into the management plan that alter or substitute the mandatory provisions of the Condominium Ownership Law.

The board of condominium owners (the “Board”) is responsible for the management of the common areas. The condominium owners are the natural members of the Board, and are entitled to participate in the management of the entire building in accordance with the provisions of the Condominium Ownership Law. The Board may outsource management power to professional management companies.

In addition, each person has also rights and obligations to the other persons living in the same property arising from Condominium Ownership Law and Civil Law.

Is it necessary to hold a tax number to acquire a property?

A tax number is requested from the buyer at the time of the property acquisition before the land registry. A foreign real person may obtain a tax number by applying to any tax office, together with a copy of his/her passport (translated and certified by a notary public).

What are the main taxes related to property transactions?

In principle every property acquisition for individuals are subject to some transaction taxes such as “Title Deed Fee”, “Value Added Tax”, “Stamp Duty,” and “Notary Charges”. Additionally, holding a property in Turkey triggers a wealth tax called “property tax.” Income derived from property such as rental income or capital gain obtained at the time of disposal of property would also subject to “Income tax”. Each tax mentioned above would subject to specific calculation, payment, declaration rules and of course have some exemptions.

What is “Title Deed Fee”? How it is calculated and paid?

“Title Deed Fee” is calculated according to the “Fee Law” for the transactions concluded at the title deed registry such as property buying/selling, registration of rental contract, annotations of any transaction made at registry etc. At the time of acquisition, title deed fee at the rate of 2% is applicable over the sales price for buyer and seller separately. Fee has to be paid to the tax office before the transaction made at the registrar.

Is VAT applicable for all property acquisitions in Turkey?

In principle every commercial, industrial and professional transaction made in Turkey is subject to VAT. So, in principle property sales also fall into the scope of VAT. On the other hand in the following cases there is no VAT applicable for property sales:

  • If the seller/owner of the property is an individual who is not dealing with any commercial activity.
  • If the seller of the property is a company which is not dealing with real estate trading on a regular basis and having held the said property for more than two years.

What are the VAT rates to be applied for property acquisitions?

General VAT rate in Turkey is 18% and this rate is also applicable for the property sales. In principle, property sales including office, residential properties, land acquisitions etc. are all subject to 18% VAT which is calculated over the sales price. But, there are different VAT rates set for the residential properties fulfilling some specific conditions.

What are the VAT rates specific to residential property sales?

In addition to normal VAT rate at 18%, rates at 1% and 8% are also applicable for the residential units having net area less than 150 sqm with some additional conditions. Thus, we strongly suggest consulting your advisor for the exact VAT rates for a residential unit less than net area of 150 sqm. Please note that residential units having a net area of more than 150 sqm and all other properties in Turkey are subject to 18% VAT as mentioned above.

What is “Stamp Tax” and how is applied to the property transactions?

All originally signed copies of agreements signed in Turkey are subject to stamp tax over the highest monetary value stated or referred in the agreement at 0.948%. Leasing agreements are subject to stamp tax at 0.189%. On the other hand, agreements signed between individuals who are not dealing with any commercial activity are not subject to stamp tax. Signatory parties are mutually liable for the payment of the stamp tax. No stamp tax is calculated if parties conclude their agreement in front of the title deed registrar.

What are the financing models for a property acquisition?

The most common financing for property acquisitions is mortgage financing, under which the financing institution establishes a mortgage over the target property in consideration for a loan of up to approximately 75% of the market value of the target property. Foreign real people are also entitled to benefit from this mortgage financing model offered by Turkish financial institutions.

What kind of loans am I offered?

There are fixed rate and floating rate loans both on the shelf. But fixed rate loan is common in Turkey. So, by choosing the first one, you can pay your loan with equal monthly instalments and a fixed interest rate through the life of your loan. By doing so, a fixed interest rate enables you to learn the exact amount of your monthly instalments in advance and your loan will not be affected by volatile market conditions.

How is establishment of a mortgage done?

A mortgage can only be established through an agreement in compliance with a certain official form. The official mortgage deed must be executed and registered by the parties before the relevant the land registry office. The legal scheme concerning the establishment of liens on immovable properties, i.e. mortgages, is mainly regulated under the Turkish Civil Code numbered 64721 (the “TCC”). Pursuant to the local regulations, a mortgage can be established on an immovable property in order to secure current or future credits. A mortgage can only be established on real estate that is registered in the title deed registry. Foreign real people can become the mortgagor without being subject to any approval.

As a foreigner, which requirements should I meet for the mortgage? What are the application conditions?

To get any kind of loan, including mortgage, it is legally compulsory to be 18 years or older. Even though incomplete houses are also subject of mortgage in some certain conditions, common practice requires that the property to be purchased must be ready to be occupied and have minimum right of easement. Maximum LTV is up to 75% of the value of the property that you are going to buy. Even though 120 months is most preferred one, loan maturity for mortgages goes up to 180+ months. As loan currency, you can prefer TRL, USD, EURO or some other convertible currencies if available. However, there are certain restrictions for foreign currency loans.

Is there a compulsory property insurance requirement?

According to the Law on Natural Disaster Insurance, “compulsory earthquake insurance” (DASK) must be held for the property. The title deed registries and the institutions providing utility services will not perform any transactions regarding the property if this compulsory insurance is not held. Apart from such mandatory insurance, the owner of the property may, at his/ her own discretion, insure the property against risks, including, but not limited to, theft, fire, flood, storm, etc.

What are the other conditions to be remarked for financing?

In order to protect your property, mandatory earthquake insurance is required. For other possible risks; life insurance and home owners insurance are recommended. A guarantor is not necessary at the time of application. However, a guarantor or co-borrower may be required as additional collateral. For fixed rate mortgages, a certain percentage of the pre-paid amount may be charged as a pre-payment penalty.

Following the approval, what are the phases to finalize the process?

There are three quick phases to finalize the process before title deed transfer.

  • Appraisal

If your loan application is approved by a financial institution (FI), there will be an appraisal process to determine value and confirm legal conformity of the property you are going to buy. The appraisal process is committed through the FI and finalized in a few days.

  • Pre-contractual Information Sheet

After the appraisal process is completed, you have to sign the pre-contractual information sheet. According to the Turkish Mortgage Law, the loan contract must be signed reasonable time after the pre-contractual information sheet has been signed. The pre-contractual information sheet contains all the important details of your loan, payment schedule, interest rate, principal amount, monthly instalments and all the fees.

  • Signing Loan Contract

Once the pre-contractual information sheet has been signed, a reasonable time later (one business day in practice) you can sign the loan contract, payment schedule and other credit documents. After you sign these documents, the pledge documents are prepared by the FI. If all required documents are complete and accurate and submitted in a timely manner, it takes on average a week from the application date to disbursement day.

How is the disbursement and title deed process?

On date of appointment, the FI contiguously establishes the first degree lien on the property after registration of sale of the property in title deed office. Then the FI transfers the loan amount to the seller’s bank account or delivers a guaranteed check for the loan amount to the seller.

Transaction costs – title deed transfer charge: A tax of 2% is payable on the sale of the real property. This charge is payable both by buyer and seller separately.

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