Cablegate: Parliament Again Approves Foreign Land Purchases in Turkey

DE RUEHAK #1395/01 2180756
P 050756Z AUG 08




E.O. 12958: N/A


1. (SBU) Summary. In separate decisions in January and April 2008,
the Constitutional Court struck down portions of both the Title Deed
Law and the Foreign Direct Investment Law, effectively barring real
estate purchases by foreign real persons or corporations (reftels).
In an amendment to the Title Deed Law on July 3, the GOT used one
piece of legislation to address the concerns raised in both cases
and brought purchase by both real and legal persons under the same
legal umbrella. In the new law, it restored the right to purchase
property, but placed several new restrictions on foreign property
ownership by real persons. At the same time, it also opened up
previously forbidden military zones to foreign companies under
certain conditions. On the whole, it is a positive step toward
calming skittish investors, but may still be subject to legal
challenge in the future. End Summary.

2. (U) Following the law's entry into force on July 15, the Land
Registry Office announced that it would again be taking applications
from foreign entities for real property purchases. As the court
rulings were not retroactive, any land already legally purchased by
foreign individuals or companies remains unaffected.

New Limits on Purchases by Foreign Individuals
--------------------------------------------- -

3. (U) Under the amendment passed July 3, foreign real persons are
again allowed to buy up to 2.5 hectares of property (aggregate
across Turkey). Previously the Cabinet had been authorized to
increase this amount to 30 hectares on an individual basis. This
discretion was one of the reasons the Court found the previous law
unconstitutional, and there is no discretion in the new law.

4. (U) As under the prior law, all properties acquired by real
persons must be located within a proper municipal development zoning
plan (which effectively forbids purchase of property in a village by
foreigners, as they do not have zoning plans). What is new is that
the Governor's Office in each province now will be responsible for
updating the zoning plan information for the province every year and
for notifying a commission headed by the Land Registry Office about
any changes.

5. (U) The earlier law set a general limit where only 0.5 percent of
the "developable" land of a province could be owned by foreign real
persons. The Court said that this amounted to all of the
"developable" land in some provinces with large forests, lakes or
public land. Under the new law, within any given development
plan/town, no more than 10 percent of the land may be owned by
foreign real persons. The Cabinet may further restrict the 10
percent maximum for infrastructural, economic, energy,
environmental, agricultural, security or cultural reasons.

6. (U) As was previously the case, purchase of land by real persons
in military areas is forbidden. The Cabinet may also still
designate other areas as "strategically important" - such as
watersheds - and sale to real persons in these areas is also
forbidden. The Ministry of Defense and the Ministry of Interior
will provide maps of strategic areas to the Land Registry Office on
a yearly basis.

7. (SBU) Comment: For several reasons, it is difficult to assess how
restrictive these new requirements for real persons actually are.
The Cabinet has not yet designated "strategically important" areas,
nor indicated in which development zones it will restrict foreign
ownership to less than 10%. Provinces have not yet published all
zoning plans. Published statistics only show the total amount of
land owned by foreigners in each province, not the percentage of
land that they own in a given zoning plan, making it impossible to
calculate how much is still available under the 10% limit.
According to Director General Mehmet Zeki Adli at the Land Registry
Office, no zoning plan in Turkey is currently anywhere near the 10
percent limit, and they do not expect the rule to be a problem for
individual foreign investors. Land Registry Office statistics show
that foreign real persons currently own only 41,723,868 sq. meters
of land in Turkey (roughly 16 sq. miles), a tiny fraction of
Turkey's total land area. However, in some towns with high foreign
investment (especially along the coast), the percentage restriction
may inhibit new investment (or force foreigners to consider
corporate ownership).

8. (SBU) Comment (cont'd): The restrictions on ownership by foreign

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real persons potentially violate the terms of the U.S.-Turkey
Bilateral Investment Treaty (BIT), which states in Article II(1):
"Each Party shall permit in its territory investments, and
activities associated therewith, on a basis no less favorable than
that accorded in like situations to investments of nationals or
companies of any third country, and within the framework of its laws
and regulations, no less favorable than that accorded in like
situations to investments of its own nationals and companies."
Because the BIT only requires MFN and not national treatment at the
time of establishment of an investment, however, potential
violations would seem be limited to cases where existing individual
investments were not allowed to expand. End comment.

Almost No Limits for Companies

9. (U) The new law's approach to companies is very similar to the
approach which had previously been part of the Foreign Direct
Investment Law. The only substantive changes are that military land
can now be sold to foreign firms (with the approval of the Turkish
General Staff), land in special non-military security areas can also
be sold (with the approval of the local Governor) and a new process
will be set up for provinces to certify that the sale of land to a
company is not in a military or "strategically important" area.

10. (U) Wholly foreign companies (with no subsidiary in Turkey) may
purchase land only where permitted by other specialized laws, such
as the Industrial Zone Law, the Petroleum Law or the Tourism
Incentive Law (this is not a new requirement). Companies
established in Turkey with foreign capital may acquire real estate
in accordance with the business activities set out in their articles
of association.

11. (U) There is no specified limit on how much land may be owned by
a foreign company established in Turkey nor are there any percentage
restrictions as there are with real persons. For wholly foreign
companies, the conditions of the specialized law permitting the
company's investment may limit their ownership. Companies may also
be excluded, by Cabinet decision, from purchasing in the same
"strategic areas" referenced in para 6.

12. (SBU) According to the Land Registry Office, a committee headed
by the governor's office will be established in each town to
evaluate applications for purchase of land by a company to ensure
that the property is not in a strategic or restricted area. They
will then issue a permit that companies can take to the Land
Registry Office to acquire the deed. The Land Registry Office
expects to publish in the near future the implementing regulation
which will allow governors' offices to issue permits to foreign
companies. Once that takes effect, there should be no further
impediment to the acquisition of land by a foreign firm.

Reaction and Impact on Investment

13. (SBU) In a conversation about the amendment, Treasury Foreign
Capital Deputy Director General Murat Alici said the restrictions
placed on foreigners' property acquisition in Turkey were not
different from those implemented by several European countries.
Turkey previously had the most liberal regime, according to Alici,
and this amendment brought its legislation in line with other
European countries' standards. Alici noted that the GOT also added
provisions to regulate companies' acquisition of property in Turkey,
combining what had previously been two separate laws. "In this
amendment, the GOT addressed the concerns listed in the second
Constitutional Court ruling referencing the Foreign Investment Law,
which banned foreign companies' property acquisition in Turkey.
This amendment also has sufficient language to regulate the
companies' acquisition, so the GOT may not have to issue another
amendment for the second Court decision," said Alici.

14. (SBU) Business reaction has so far been muted, mainly because
the ruling prohibiting foreign companies from purchasing land was
not scheduled to take effect until October. Several organizations
we contacted were unaware of both the ban and the new law, and one
company operating in the real estate sector believed that the
Court's decisions applied only to foreign individuals. Other firms
are still digesting the new requirements. The International
Investors' Association (YASED) has established a committee to
evaluate the impact of this legislation on foreigners' access to
property in Turkey. The committee has not finalized its

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investigation yet, but they hope to issue a report soon.

15. (SBU) Comment: Much as we would like to say that the ability of
foreigners to purchase real property in Turkey has been finally
decided, it is still possible that we will see another legal
challenge to foreign land ownership. There is a potential conflict,
for example, between this latest Title Deed Law and the Foundations
Law about whether foreign foundations have the right to own real
property: the Foundations Law says they can under certain
circumstances, but the Title Deed Law restricts foreign ownership to
foreign individuals and corporations. This Title Deed Law is the
third iteration in five years, and the repeated cycle of
legislation-court challenge-new legislation does nothing to help the
atmosphere of legal uncertainty, often cited as a key investor
concern about investing in Turkey.


© Scoop Media

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