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Cablegate: Turkey: Court Rulings Leave Foreigners' Land Purchase

VZCZCXRO1723
PP RUEHDA
DE RUEHAK #0723/01 1091143
ZNR UUUUU ZZH
P 181143Z APR 08
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC PRIORITY 5936
INFO RUCPDOC/USDOC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHIT/AMCONSUL ISTANBUL PRIORITY 4137
RUEHDA/AMCONSUL ADANA PRIORITY 2866
RUEHRC/USDA FAS WASHDC

UNCLAS SECTION 01 OF 02 ANKARA 000723

SIPDIS

DEPT PASS USTR FOR MMOWREY
TREASURY FOR OASIA
USDOC/ITA/MAC/KNAJDI
DEPT PASS EXIM FOR MARGARET KOSTIC
USDA OSEC FOR DEP U/S TERPSTRA
USDA FAS FOR OA YOST; ITP/SHEIKH; FAA/DEVER

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: EINV ECON BEXP TU
SUBJECT: TURKEY: COURT RULINGS LEAVE FOREIGNERS' LAND PURCHASE
RIGHTS IN DOUBT

REF: ANKARA 699

1. (SBU) Summary and comment: The Constitutional Court has issued
two opinions this year striking down parts of two different laws
that had allowed foreigners to purchase real estate in Turkey. A
January ruling struck down provisions of the Title Deed Law that
allowed foreign individuals to purchase land, effective April 16. A
March ruling struck down provisions in the Foreign Investment Law
that allowed foreign companies or Turkish companies with foreign
capital to purchase land in Turkey, effective October 16 (reftel).
The two rulings came for entirely different reasons, and neither is
retroactive.

2. (SBU) When the January ruling went into effect on April 16, the
Land Registry Office announced it was barring land sales to foreign
individuals, but emphasized that foreign corporations were still
allowed to buy land. Unfortunately, that same day, the Court
published the legal reasoning for its March ruling that foreign
corporations cannot buy land. Even though the Land Registry
announcement was legally correct -- the Court's March ruling barring
land purchases by foreign corporations will not go into effect until
October - it appeared to contradict the Court's ruling and created
confusion about foreign land purchase rights. The Ministry of
Finance has submitted an amendment for Cabinet approval that would
lift the Court ruling against land purchase by foreign individuals.
We expect it also will propose amendments to overturn the ruling
limiting sales to foreign corporations. But the damage to Turkey's
reputation may already be done. End summary and comment.

The January Decision Affecting Individuals
--------------- ------------------ -------

3. (U) The Constitutional Court issued rulings in January and March
striking down provisions of two different laws that allowed land
purchases by foreigners in Turkey. The January ruling struck down
part of the Land Title Law that allows foreign individuals to buy
property. The Court annulled a provision that authorized the
Cabinet to increase the legal limit on land ownership by foreigners
from 2.5 hectares to 30 hectares. The Court also canceled the
article that set a 0.5% limit on the area foreigners could acquire
in any one province, excluding forest and lake areas. The Court
reasoned that 0.5% of land in a province excluding lakes and forests
was the entire remaining land area in some provinces. The ruling
took effect April 16, three months after the Court published its
legal reasoning for the decision.

4. (U) On April 16, the Turkish Land Registry Office announced that
it would stop permitting property sales to foreign individuals
pursuant to the January Court decision. The Land Registry Office
stated that the ban affects only foreign individuals, and that dual
nationals and foreign companies registered under the Turkish
Commercial Code could continue to buy property in Turkey. The Land
Registry Office also announced that it sent a draft amendment to the
Prime Ministry that reportedly limits property ownership by
foreigners to 2.5 hectares, removes the Cabinet's authority to
increase this amount, and defines the provincial land acquisition
limit as 0.5% of the development zone plan. Criticizing this
proposal, Finance Minister Unakitan announced that the GOT had
submitted an amendment to the Cabinet that would overturn the
January decision and clear the way for foreign individuals to once
again purchase property in Turkey.

The March Ruling Affecting Corporations
---------------- ----------------- -----

5. (U) In March (see reftel), the Constitutional Court struck down
provisions of the Foreign Investment Law that allowed foreign
corporations, or Turkish corporations with foreign capital, to buy
land in Turkey. The ruling said it would go into effect six months
after the Court published its legal reasoning in the case. By
chance, the Court published its reasoning on April 16, the same day
that the Land Registry banned foreign individuals from buying land
pursuant to the January Court decision.

6. (SBU) To make matters even more confusing, the Court's legal
reasoning for the Foreign Investment Law decision contradicts the
statements by the Land Registry Office that Turkish companies with
foreign capital could buy land. The Court stated that the
principles and procedures by which foreign investors can acquire
property in Turkey must be well-defined by laws and regulations.

ANKARA 00000723 002 OF 002


The failure of the Foreign Investment Law to define the limits under
which foreign companies can acquire property causes uncertainties,
according to the Court. Its decision applies not only to foreign
corporations doing business in Turkey, but also to Turkish
corporations registered with foreign capital. The GOT has until
October 15 to amend the Foreign Investment Law before the Court's
ruling takes effect.

7. (SBU) Comment: We expect that the GOT will push through
amendments to both the Title Deed Law and the Foreign Investment Law
to overturn these Court decisions. But the damage these rulings
have caused by creating confusion in an already skittish market
about which classes of foreign investors have the right to purchase
land in Turkey is already done. The Land Registry Office's
statement was legally correct but only confused matters further.
The Court decisions could further complicate Turkey's efforts to
attract enough foreign investment to finance its current account
deficit. This situation is yet another good example of why foreign
investors cite the uncertainties, complexities and lack of
transparency of the legal system as one of the main barriers to
greater foreign investment in Turkey. End comment.

DEBLAUW

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