Investment Guide

How to Proceed in the Investment Process?

How to Proceed in the Investment Process?

Who Can Get Property in Turkey?

  In Turkey, except for citizens of certain countries (Syria, Armenia, Cuba, Israel, and Cyprus) that are foreign natural persons, qualify to acquire property rights in Turkey. However, the total size of the land cannot exceed 300,000 m2 per person. In addition, real persons of foreign nationality can acquire real estates up to 10% of the total surface area in the neighborhood concerned. This rate can be increased by the Turkish authorities.

  Natural persons of foreign nationality need to apply to land registry offices in Turkey in order to formally understand whether they will buy a property. If the land registry office in Turkey gives approval, the real estate acquisition process is carried out subsequent thereto.

  Except for the limitation mentioned in the first paragraph above, no distinction or discrimination is made between real persons of foreign nationality and Turkish citizens in the country during the acquisition stage.

   Difference Between Foreign and Turkish Taxpayers

  There isn't any difference between Turkish citizens and foreign nationals residing in Turkey in taxation applications after real estate acquisition. Foreigners, Turkish citizens and people living in Turkey too can benefit from the same rights. With the amendment made in the past year, by bringing positive benefits in payment value-added tax for foreigners (KDV), being a foreigner in the first sale in the deed of the new buildings constructed as residential and business premises, is considered as advantageous.

  The land registry system that kept records of real estate in Turkey is known to be a robust and reliable system in which every real estate transaction is officially registered by the institutions.

   Difference Between Commercial Real Estate, Villa and Housing Acquisitions

  In its simplest definition, there is no difference between in acquisition of a commercial real estate (Factory, Warehouse, Plaza, Shop, Shopping Mall, Office) which brings money with the facilities in it, and villas on the shore of Bosphorus that divides Europe and Asia.

   The Heritage of the Foreign Real Estate Owner

  Foreign real estate owners who completed the real estate acquisition stages and became the owner of the real estate can transfer their real estate to their legal heirs through inheritance. However, they should not be a citizen of the countries mentioned in the first paragraph here (Syria, Armenia, Cuba, Israel and Cyprus). If the immovable property is located in military areas and security zones and is open only to Turkish citizens, then real estate cannot be transferred to foreign nationals through inheritance. If the total size of the property taken over by a single heir exceeds 300,000 m2 and exceeds 10% of the total surface area of interest, if the heir does not have the right to acquire the real estate due to the above-mentioned restrictions, the heir is deemed to be obliged to sell the real estate to a third party accepted by law within 1 year. Otherwise, the real estate is put up for sale by the Ministry of Treasury and Finance and the sale price is paid to the heir.

   Finding A Property in Turkey

  You can contact the seller directly for real estate acquisition or you can get support from the local real estate sales consultant for the accurate and complete delivery of the documents during the completion of official transactions.

   The Right Price in Real Estate Acquisition

  In Turkey, it is asked from real estate appraisal companies to prepare neutral and objective reports on the value of the property in the real estate sales to foreign natural persons. The relevant government agencies are operating in accordance with this report. Real estate appraisal companies, on the other hand, determine the price of the property by evaluating the value of the property in terms of quality and quantity with the signature of 3 independent experts. Alternatively, there are also consultancy companies showing the real estate prices per square meter changes in every neighborhood over the years in Turkey.

 

   Is the Land Registry System in Turkey Safe?

  Land registry system established in Turkey, the foundations of it were laid by the Ottoman Empire, and it has been in use for hundreds of years by being updated in line with the technology of the day. This system is registered with the official authorities of each real estate sale and purchase transactions and stands out as a robust and secure system. Because since the Turks have preferred real estate as a traditional investment tool for centuries the system forced to be robust and secure.

  The land registry records are kept in a public system and the rights of third parties that own the title and benefit of the real estate are respected. Information on the legal status of immovable property is recorded in physical books and is also stored in the computer system called TAKBIS.

    Reviews Necessary for Real Estate Acquisition

  Before performing real estate acquisition process in Turkey, having information about the legal status of the property concerned, in order to predict the possible legal risks and the effect of the investor on the use of the property for the purposes he wants, a review is needed.

  This review provides an advantage for investors to prevent various risks beforehand. These issues;

·      Real Estate Evaluation

It is necessary to investigate whether the seller is owner of the real estate in the land registry system. By examining the details of the property, it can be verified that the seller is the legal owner of the property.

·      Mortgages on Real Estate

In favor of third parties in property inspection, it needs to be looked for any outstanding debt, foreclosures, mortgages. For this, deed records can be examined. Other annotated rights such as easement right, commitment etc. should also be checked. If there is no annotated right, it is appropriate to transfer the property without being subject to restriction or forbidden risk.

·      Cadastre Records

It needs to be detected that whether cadastre records, which is the work of determining the places, areas, borders, values and legal status of all land, terrain, and properties in the country by the state and tying to the plan by establishing a regular and sound land registry, correspond to the zoning plans of the municipality and do not contain any unusual information. It should be remembered that the property boundaries in the cadastre, ie property boundaries, must match the property boundaries specified in the zoning plans.

·      Zoning Status

Which activity is allocated for the use of the property to be purchased with real estate acquisition, must be learned by asking the relevant municipality within the boundaries of the property. If the zoning status is registered for the purpose of residence, the relevant real estate cannot be used for commercial purposes.

·      Construction Permit and Occupancy Permit

When a new building is to be built or when changes are made to the existing building, a building permit and occupancy permit must be obtained from the relevant municipality within the boundaries of the property. This permit confirms that the property was built in accordance with the construction license.

If there is no permission to use the building or there is a discrepancy with the construction permit, the municipality may decide to demolish the building or modify it in accordance with the construction permit. In addition, the owner of the land may be subject to various fines.

·      Current Physical Status of Real Estate

Before becoming a party in the sales contract, the real estate must be visited to know its current physical condition. Conducting due diligence regarding the compliance of the physical situation with the final project, comes to the forefront in the examinations necessary for the real estate acquisition process.

      Major Purchasing Agreements

      There are two types of purchase agreements. The first is a purchase / sale agreement, ie a direct acquisition, and the other is a sales promise agreement.

      Purchase / Sales Agreement

       In Turkish law, the sale of a property is made only by the presence of both the seller and the buyer in the presence of the relevant land registry. In addition, direct acquisitions can be realized with the participation of persons who have been issued sales and purchase power of attorney. The seller and the buyer are required to sign a standard transfer document prepared by the land registry.

    If you buy a building under construction in Turkey, especially if there is an acceptable time for completion of the project it is essential to know that that the contractor, ie the project owner, is financially reliable and legally competent.

     Sales Promise Agreement

     Before the purchase of the real estate, the buyer and the seller can sign a preliminary sales promise agreement between them. In order for this agreement to be binding and valid, it must be signed before a notary public.

    In order to prevent the claims of third parties on the real estate, the sales promise agreement must also be registered in the land registry. Otherwise, the transaction of a third party stating that it is well-intentioned is considered valid. Annotation in the sales promise agreement is valid for a period of 5 years.

    Payment Options for Real Estate Acquisition

    As a payment option in real estate acquisition, the purchase price can be made in cash, by bank transfer or through a blocked check. In addition, payments can be made with bitcoin which is used in many national and international markets recently. In Bitcoin payments, a certain commission is taken and payment is provided through the bank.

    Power of Attorney for Real Estate Acquisition

    Natural persons of foreign nationality or their legal representatives may carry out the related transactions during the real estate acquisition process. If the purchase is made with power of attorney, it must be organized and prepared by a notary public. Furthermore, according to Turkish law, the authority to audit and approve that it has been granted the power to act on behalf of the person giving the power of attorney needs to be signed in the presence of a notary public.

    Writing the full names and addresses of the legal representative or representatives, as well as all authorizations given to legal representatives for the acquisition of real estate in the power of attorney to be used for real estate acquisition, is one of the points to be considered for the smooth completion of the process.

    Power of Attorney Prepared in Abroad for Real Estate Acquisition

    If the power of attorney prepared and made abroad, by following these transactions it can be made binding in Turkey. These;

·      The signatory's photo should be in power of attorney,

·      Signing, sealing or stamping the photograph by the authority that issued the power of attorney,

·      Preparation of the power of attorney in the official language of the country of issue,

·      Notarization and apostille of power of attorney by the notary,

Also, in order for a power of attorney to be binding, it needs to be translated by a notarized translator in Turkey.

Property Ownership Law and Management Plan in Real Estate Acquisition

    The management plan regulates the management and operation of the main structure and common areas where the real estate is located and is an agreement between owners of condominiums. And it includes provisions that have been passed to condominium owners and their heirs for adherence to the terms of the management plan.

    It includes determining the rights and obligations of the parties living in the same real estate project, counting the purposes of use, establishing the rules of general management such as property management operations and supervision, maintenance and repair. The aim is to ensure that the peace, health and safety of the people living in the property are established and maintained in a proper functioning system in accordance with the Law on Condominium Ownership.

    The provisions of the management plan only apply if they are in accordance with the Property Ownership Act. The provisions of a management plan that prevent or replace the mandatory provisions listed in the Condominium Law cannot be made.

    The board of condominium owners consists of natural memberships of condominium owners responsible for managing common areas and has the right to participate in the management of the entire building according to the Law on Ownership.

    In addition, each person has the rights and obligations arising from the Property Law and Civil Law for other persons involved in the same real estate project.

Tax Number in Real Estate Acquisition

    To start the acquisition process of the land registry office real estate in Turkey, people who are going to buy the property are asked to have a tax number. Real persons of foreign nationality can go to any tax office with their passports that have been translated and approved by a notary public and can obtain a tax number.

Major Taxes in Real Estate Acquisition

    In Turkey principle real estate acquisition transactions by individuals "Land Mortar", "Value Added Tax", "Stamp Duty" and "Notary Mortar" has to be paid as some tax treatment. In addition, the “Notary Costs” constitute an expense item while performing the aforementioned operations.

    In addition, various capital gains are taxed in Turkey. To own real estate in Turkey "Real Estate Tax" name makes mandatory the payment of a wealth tax.

    If an income is obtained by renting the related property after the acquisition of the real estate, the Income Tax can be paid by declaring the rental income obtained. However, because of adequate control mechanisms in this regard could not be developed in Turkey, rental income tax can not be charged sufficiently. The increase in value arising from the disposal of the property is also subject to “Income Tax”.

    There are exceptions to these taxes, subject to payment and declaration rules, by making certain calculations for each tax type listed above.

Deed Mortar for Real Estate Acquisition

    According to the Law on Fees, the title deed fee is taken for the transactions to be realized in the title deed registry like real estate acquisition and sale processes, registration of rental contracts, and annotation of all transactions made in the land registry records. This fee has been reduced to 1.5% until 31 December 2019, starting from January 1, 2020, it is foreseen to be realized in the purchase and sale of housing and business by taking 2% title deed separately from the buyer and seller. The deed fee is calculated over the sales price and must be collected separately from the buyer and the seller and must be paid to the tax office before dealing with the registrar.

Value Added Tax in Real Estate Acquisition (VAT)

    While all kinds of real estate sales transactions for Turkish citizens in Turkey subject to Value Added Tax, land and workplace sales are also assessed and taxed within the same scope.

There are exceptions to this situation. These;

·      Turkish citizens who have been granted work or residence permits and have been living abroad for more than 6 months,

·      Foreign natural persons residing in Turkey

·      A legal entity which does not have its business center in Turkey and does not generate income via a workplace or a resident representative in Turkey

is exempted from VAT.

    In Turkey, foreign natural/legal person of the KDV exception for such transactions tax exemption only in cases where the real estate transfer fee to be brought to Turkey and paid in foreign currency to be known to be valid. At the same time, it is requested to hold the property in question for at least 1 year after acquisition for tax exemption. If the property is sold within 1 year of acquisition, VAT must be paid to the tax authorities with late payment interest.

    With the exception of sales to foreigners (who do not reside in Turkey) mentioned in the above paragraph; if the person acquiring the real estate does not conduct this business for commercial activity, that is, it does not gain any commercial profit from the purchase or sale of real estate, or the seller of the real estate does not regularly trade real estate as a legal entity and holds the property for more than 2 years, VAT exemption is applied regardless of whether the sale is made to real or legal entity and the transactions are carried out without VAT.

VAT Rates in Real Estate Acquisition

    VAT rate applied in basic commodities and services in Turkey is 18% and this ratio is also considered essential for real estate sales. Whether for office, residential, land acquisition or for all similar real estate sales, in principle 18% VAT is calculated on the sales price. Under certain conditions, different VAT rates are required for real estate sales.

Valid VAT Rate for Sale of Real Estate

    As mentioned above, real estate sales are paid to tax offices by paying 18% VAT on sales. Apart from this rate, it is applied at 1% and 8% rates under certain conditions for houses with net area less than 150 m2. The relevant conditions generally include exceptions for buildings that are not included in the metropolitan boundaries and exceptions at a unit square meter tax value of the land on which the house is built.

    Delivery of the houses larger than 150 square meters subject to %18 VAT, which temporarily (Until the end of 2019) lowered to 8% in Turkey, still 8% VAT is applied. In the delivery of the houses with a building license obtained after 2017 and less than 150 square meters, within the boundaries of the metropolitan municipality, these houses, which were built as luxury or first class, were subject to a VAT rate of 1 percent only for those with a land area of ​​less than 500 lira. In accordance with the amendment made, now the houses whose building permits obtained in 2017 and after and the houses with a land value up to thousand liras(excluding thousand liras) are being sold with %1 VAT. As of today, %8 VAT is calculated in the sales of houses (in metropolitan municipality and luxury or first-class construction) that have land square meter value over 1000 liras and smaller than 150 square meters. However, this rate is valid until the end of 2019 for those who exceed 2 thousand pounds. From January 1, 2020, it is known that real estate sales will take place with 18 percent VAT instead of 8 percent.

Stamp Tax in Real Estate Acquisition

    In Turkey, there is a Stamp Tax received from legal and official paper documenting transactions between persons with persons, persons with institutions or institutions with institutions. 0,948% stamp tax is levied on the highest monetary value specified in the contract or with reference to the contract from the contracts signed in Turkey.

    Stamp tax is not taken in the sales promise contracts, and stamp tax is not collected from the pre-paid real estate sales agreements.

    In the lease agreements, the calculation is made on the total rental period in the contract and not on the general stamp data rate, and a stamp tax of 0.189% is collected on the total rent.

    If the parties do not engage in any commercial activity, no stamp duty is levied on the signed agreements.

    The parties that sign contracts are held jointly and mutually responsible for the stamp duty. The parties that sign contracts are held jointly and mutually responsible for the stamp duty. The official deed signed in front of the land registry officer for real estate purchase or sale transactions is not exempted from the stamp duty.

Processes Before The Title Deed for Financing

    In the financing process, three stages have to be completed in order to complete the process before the title deed transfer.

1.    Stage 1- Apprasial

When credit applications for real estate acquisition are approved by the financial institution, the appraisal is required to determine the value of the property to be purchased and to check its legal status. The appraisal includes identification of the real estate, its condition, its suitability for the intended purpose and/or its opinion on its possible financial value in the free market by real estate appraiser. Appraisal is realized by the financial institution applied and it is announced within a few days.

2.    Stage 2- Pre-Contract Information Form

According to the Turkish legislation for signing the mortgage loan contract, after appraisal, the pre-contract information form must be signed. The pre-contract information form contains the following details; loan amount, payment schedule, interest rate, principal amount, monthly installments and all fees information.

3.    Signing of the Loan Agreement

It is necessary to sign the loan agreement which must be signed within a reasonable time after signing the pre-contract information form, as well as the payment plan and other loan documents. The financial institution is obliged to prepare the collateral after the documents are signed. It is known that the process will take an average of one week from the application date to the due date if the required documents are completed at the right time.

After the date of appointment, the financial institution establishes the first-degree mortgage on the real estate after realizing the registration of the land registry in the title deed office, the financial institution will then forward the loan amount to the seller's bank account for the acquisition of real estate or provide the seller with a guaranteed check for the loan amount.

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