Timing Turkey Real Estate Investments Based on Reciprocity

Online, August 31, 2010 (Newswire.com) - Turkey's land registry law stipulates that a foreign person may buy real property in Turkey only if a citizen of Turkey has the reciprocal right to do so in the country of the foreign person's residence. Turkey has reciprocal agreements with the U.S. and much of the European Union, but there are a great many countries where reciprocity is not in place. The majority of Arab Nations, Iran, and even some Turkic countries do not allow this reciprocal purchase of real estate. As countries much closer geographically to Turkey, many view this as a serious detriment to real estate sales growth and investment.

A great deal of past real estate activity in Turkey was based on purchases by Europeans and Americans. Luxury estates in the Aegean and Mediterranean regions were popular. However, with the global problems in real estate, there are many properties in those areas now lying idle, some equating the situation to a "ghost town." The situation is indeed serious, as sales from 2006 to 2008 had averaged almost $3 billion/year. Last year's number was approximately $1.8 billion.

There is still demand for real estate in Turkey in the U.S. and the EU, but it has seriously declined. At the same time, there has been increased interest from neighboring countries with geographic and cultural similarities. This would be a very positive development if this demand is allowed to flourish, but the reciprocity requirement is a deterrent. One estimate is that there would be $5 billion of added real estate purchase activity in a three to five year period if the reciprocity requirement is lifted. Proponents for an amendment to the law cite Spain as an example. Imposing no restrictions on foreign real estate purchases, Spain took in $3.6 billion Euros last year.

While there is still a vibrant tourism industry in Turkey, and it attracts neighboring countries' citizens, it is an expectation that amending the reciprocity requirement would entice more of these visitors to purchase real estate. Reciprocity relates to individuals only, so establishing a business in Turkey allows circumvention of the law to purchase a property as a business base.

If Turkey is on an investor's list, or being considered for a vacation property purchase, it may be wise to watch the development of efforts to amend the reciprocity law. If its detractors are right, there could be a period of rising prices soon after restrictions are loosened or removed.