Approved this month by the president, the law authorizes 183 nationalities (up from a previous 89) to purchase real estate in Turkey “free of restrictions” from the state, leading one Turkish daily to quip this week that foreigners need only a “passport or any old mug shot” to buy real estate under the new law.
The process won’t be that easy for citizens of countries neighboring Turkey, including Greece, Armenia, Bulgaria, Syria and Iran, who will be limited or entirely barred from purchasing property in the country -- a hold-over from regulations in decades past, which limited foreign property ownership on the grounds of “national security.”
The law nevertheless marks the biggest opening in Turkey’s real estate market to date for foreign investors, says former vice president of the government’s Privatization Administration (ÖİB) Süleyman Yaşar, who told Sunday’s Zaman on Thursday that “the new law is designed to make Turkey more accessible to outside investment, and make İstanbul a global city.” More specifically, one might say it aims to make İstanbul the new financial and vacation capital of the Middle East, as experts in Turkish property markets anticipate a wave of investment from the real estate-hungry Gulf States and Saudi Arabia.
Wherever the money comes from, the government hopes to attract a lot of it within the next decade -- no less than $300 billion in foreign investment by some officials’ accounts. That ambitious sum hints at the government’s eagerness to see İstanbul follow in the footsteps of real estate capitals like New York, London and Dubai, says Yaşar, adding that while a housing and office space glut will keep prices down in the short term, İstanbul’s real estate prices will soar in tandem with the government’s lofty ambitions.
The future of real estate in İstanbul
If İstanbul realtors anticipate a new tide of investment from the Middle East, their judgment is based on a current wave of investment from the Gulf states and Saudi Arabia, which, despite extensive restrictions and barriers, began almost a decade ago. According to Oya Zingal Dural, country manager of Mresco Turkey, a Kuwait-based international real estate company, Kuwaiti and Saudi Arabian customers have in the last several years, despite previous regulatory barriers, begun to buy up second homes in Turkey in large numbers.
İstanbul’s rising clout among Arab buyers could be attributed to İstanbul’s growing global prominence and its status as the world’s number five tourist destination. It also helps that the city is romanticized in the many Turkish soap operas which are today beloved by Arabs the Middle East over. “Many Turkish TV series have been drawing huge attention in the region,” writes Dural. Indeed, one Turkish daily even suggested in early August that the government “will ask television actors such as Kıvanç Tatlıtuğ and Tuğba Büyüküstün, who have shot to fame in Arab countries in the Persian Gulf, to lure wealthy investors from that region.”
Arab investors, however, may not need the prompting of soap opera dreamboats to invest in Turkey, said a report released this month by the global real estate firm Jones Lang LaSalle (JLL). According to the Khaleej Times, the report found that “sovereign wealth funds, investment funds and private equity funds from the Gulf region are among those redirecting their growth plans towards Turkey” as the slowdown in Europe makes investment prospects there increasingly gloomy. Indeed, when the details of the real estate law were made public in May, the Turkish Central Bank reported a buying boom in which $1.1 billion in real estate had been purchased by foreign investors, four times the total sum of real estate purchases by foreign nationals in all of 2011. The sudden buying up of real estate -- which experts largely attributed to anticipation of higher prices once more buyers were able to access the market – has led to speculation that prices will eventually soar in parallel with the astronomical rise in demand.
The JLL reports that this may be unlikely within the next few years, citing the booming construction industry, which has produced a glut in housing, and an additional 4 million square meters of office space that will hit the market by the end of 2013. Nonetheless, say many realtors, prices will rise considerably in the long term -- especially when it comes to summer homes and vacation properties. “Prices are simply destined to rise, because real estate now is rather undervalued, even with a significant increase in price, İstanbul is going to be cheaper than its competitors,” says Yaşar. “If you look at London, Paris, Moscow or Dubai, the prices here aren’t getting extremely high. Turkey is going to remain a good alternative, so lots of real estate is going to be getting bought up.”
Old restrictions remain for Turkey’s neighbors
The new law is a significant departure from Turkey’s decades-old policy of “reciprocity” in its real estate laws, abandoning the principle that “you can buy real estate in Turkey only if a Turk could buy real estate in your country,” says Bahçeşehir University economics professor Seyfettin Gürsel.
But the trappings of economic nationalism are nonetheless present in the coming law, with limitations imposed on the purchase of property by neighboring countries, and the outright ban on property sales to citizens from countries with which Turkey does not have formal diplomatic relations, which are Armenia, Syria, Yemen, Cuba, Nigeria and North Korea.
Greek citizens are also banned under the present law from buying property in much of Turkey, with some Turkish papers reporting that Greeks will not be allowed to buy any coastal properties in Turkey, and others reporting that sales will be forbidden in 28 coastal regions near the Aegean Sea, in the border province of Edirne and in the city of İstanbul. Notably absent from the regulation is Greece’s Turkish population in western Thrace, which owns thousands of properties across Turkey. The law also imposes similar bans on Russian purchases of land in the Black Sea, and bans on Bulgarian, Iranian, and Syrian purchases in border regions. Such regulations are copied largely from Turkey’s previous real estate regulations, which also limit foreign property ownership to 10 percent of any given town and prohibit the purchase of land in the countryside.
The limitations, says Gürsel, emphasize how much room still remains for investor-friendly Turkey, despite the landmark change in law. “The law is certainly going to make buying property much easier,” he says. “But some things have also remained the same, and it certainly could be reformed to make it more friendly to investors from all countries. But it is a major move by all means.”