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Real Estate in Turkey


Considering the continuing global effects of the economic downturn, Turkey’s consistent growth is a respectable victory. Turkey’s booming real estate sector has been aided by multiple legislative advances aimed at attracting both domestic and foreign investment. FDI in particular has benefitted from the abolishment of the reciprocity principle and amendment of the Land Registry Law, which have eased the process of acquisition of real estate by foreign companies and Turkish companies with foreign shareholding. This, combined with the profitability and available opportunities in the sector, has led to an increase in high value real estate transactions (in the form both of pure asset transfers and of share transfers in SPVs holding real estate).

An attractive medium for investors to take a slice of the Turkish real estate market is through real estate investment companies (“REICs”). These are special portfolio management companies incorporated solely for purposes of investing in real estate/real estate projects with a high return potential, obtaining income from sales, acquisitions, or rental. The number of REICs and their portfolio value have steadily increased, thanks, in part, to the enactment of the Communique on REICs on May 28, 2013. The Communique: (i) reduces the bureaucracy surrounding the incorporation of REICs and the conversion of ordinary companies into REICs; (ii) eliminates the requirement that share transfers not resulting in a change of control obtain the permission of the Capital Markets Board; and (iii) expands financing options by allowing REICs to issue real estate certificates. Combined with tax incentives already in place, such as an exemption from corporation tax, the allure of the REICs is anticipated to continue. 

One of the most significant trends of the past few years is the construction, sale, and/or operation of shopping malls. Istanbul alone has 91, and the forecast for 2015 is for over 350 nationwide. While the construction of shopping malls separate from other functions is probably here to stay (especially in the yet-unsaturated Anatolian cities), the residential and workplace requirements of an ever-increasing population with more disposable income has resulted in the logical step of combining shopping malls with residences/offices. 

The booming import and export sectors of a country which won the geographic lottery also has an impact. Turkey has a large portion of global markets covered by its export network, especially the Gulf states, Europe, and Northern Africa. The rising appetite of increasingly wealthy citizens for imports sets the scene for an expanding logistics sector in need of more infrastructure (ports, airports, warehouses, etc.). The current construction of the third airport in Istanbul, which is set to be the largest in the world, is a prime example. 

Turkey’s vulnerability to earthquakes had led to many years of discussions on options regarding safeguards for the country’s citizens, eventually concluding with the enactment of the Urban Development Law on May 31, 2012. The Law allows municipalities and the state-owned Collective Housing Administration to expropriate real estate that must be rebuilt. This has resulted in Turkey – and Istanbul in particular – becoming a major construction site for residential, commercial, and recreational projects. The Turkish government has pledged to rebuild/strengthen 6,500,000 existing buildings at risk of destruction from natural disasters with a budget of USD 400 billion, turning urban development into an unexpectedly lucrative business.

In line with Turkey’s policy of attracting more foreign investment and constituting the most intriguing development in the real estate sector this year, the Communique on Real Estate Investment Funds, enacted on January 3, 2014, allows the incorporation of real estate investment funds in Turkey for the first time. These funds enable the securitization of and provide liquidity to large scale real estate, increasing the access of investors to owners of real estate, may be incorporated by portfolio management companies as well as real estate portfolio management companies. As is the case with REICs, real estate investment funds are also exempt from corporation tax, making them more attractive to larger investors. As the Communique entered into force in July 2014, the first of these funds have only just begun to be incorporated. Many more are expected within 2015.

While the first half of 2015 is expected to be dominated by a wait-and-see attitude to upcoming general elections, we anticipate a year full of foreign investment, especially from foreign real estate investment funds. 

By Alican Babalioglu, Partner, CMS’ Turkish arm, Yalcin Babalioglu Attorney Partnership

This Article was originally published in Issue 2.1. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.