Guide to Buying Property in Turkey
The buying process in Turkey
The main reason that properties in Turkey are so cheap is the immaturity of this market – with no competitive mortgage market, as yet, for nationals let alone foreign buyers (to find out more about the current options, see How to finance your property purchase below).
This means that most sales in Turkey are cash sales - where the purchaser pays a deposit, followed by an interim payment and a final payment on completion (for off-plan purchases, the buyer is usually required to put down a larger sum pre-completion).
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Since the cash payments are made to the vendor, the buyer must have guidance
from an agent and an independent lawyer to ensure everything is in order.
The solicitor will draw up the sales agreement and check the title of the
property to ensure the vendor actually owns it. They will also check whether
there are any charges on the property, that building licences and permissions
are in order, and that any terms and conditions from the vendor are fair
and reasonable.
UK buyers often look for translated sales agreements from a legal translator,
so each party fully understands the other’s expectations.
Fees are usually paid once the sales agreement has been signed, to include
deposit, legal fees and agency fees. Solicitors’ fees can range from €350
- €2,000 – depending on whether local professionals, your own lawyer, or
both, are retained - while agents charge around 3% (to the buyer and seller).
Legal translators charge around €100 and notaries will charge about €90
for Power of Attorney and a translator.
Military clearance
The paperwork is then sent off to the title deeds office (for the transfer
of title) and they will send the passports/ID cards and title deeds (or
Tapu) off for the military check to make sure the property is not within
a certain radius from a Turkish military base. Since this can take from
2-3 months (or more due to the recent suspension of the Land Registry Act),
some buyers decide to give the local solicitor a Power of Attorney to sign
for the release of the deeds once they have been authorized (some agents
offer this Power of Attorney service but an independent lawyer is more
advisable).
At this point, the release of the title deeds is signed in the presence
of a notary (again, this can be done in absentia through Power of Attorney)
and you will usually have to pay the balance due on the property - as well
as various taxes and fees. These fees/taxes are listed below (please note
that they will vary depending on location):
- Buyer’s tax: Between 1.5% and 3% of the sale agreement price
- Government tax: From €150 - €750
- Property tax: Based on property type and location, it is approximately 0.5% to 0.6% of the property price (paid yearly)
- Utility connection fee: Based on property type/location, between €300 and €500
- Earthquake insurance: Since much of Turkey is in an earthquake zone, this insurance is required by law and depends on property price and location
- Other costs will include furnishings (white goods, soft furnishings, etc) and for complexes there are maintenance costs of about £50 a month
Turkey enjoys a bilateral agreement to avoid dual taxation for UK buyers, but taxes are still determined by local authorities. The majority of property ownership is freehold, to include land as well as property, but there are some restrictions on title that buyers should be aware of (see The law of the land in Turkey below).
Promising a low cost of living, as well as cheap property with good growth potential, Turkey could become a key market for retirees. Those who plan to stay in the property for more than three months will need to leave the country and re-enter to re-new their visa - although property owners living in Turkey can buy a residency visa for one year (from £240 or £915 for five years). Those looking to set up a business will still need to apply for a residency visa and work permit.
Still seen as an emerging market with a lot of promise, Turkey fulfils much of the criteria for a range of buyer types. It’s worth bearing in mind, though, that the climate will vary in the north and south with much colder winters in the north. This should inform your choice of property and location based on whether you are looking to emigrate, retire, let to tourists or professionals or buy a holiday home. Back to Top ^
How to finance your property purchase
A
key reason why property is so cheap in Turkey is the lack of an established
and competitive mortgage market. Domestic mortgage products were introduced
by Turkish lenders last year but nothing is currently available for foreign
buyers as yet. However, while there are still a number of options available
to people who want to buy in this market, purchasers should be aware of
the current regulations to ensure they do not expose themselves to unnecessary
losses.
First of all, current regulations state that any monetary transaction which exceeds YTL8,000 (or £3,000) must be made through banks, private financial agencies or the post office (PTT). This is to ensure all transactions are documented, thus providing clear proof in the event of a dispute.
Although it is possible to pay in sterling, US dollars or euros, it is often recommended that the currency is converted to New Turkish Lira (YTL) and price terms in the contract are set in this currency to reduce conversion errors (thus avoiding any tax evasion complications). However, it is possible to open accounts in any currency in Turkey and there are no limits on foreign currency accounts.
A key thing to remember with savings/deposit accounts in Turkey (where interest is paid at the end of the savings term) is that if the money is withdrawn before the end of the term then no interest is paid and you only receive the principal. Many Turkish banks will automatically set another savings term if the money is not withdrawn at the end, so it’s worth checking whether this is the policy (they would usually repeat the period renewal and apply current interest rates to the accumulated amount as the new principal).
Getting Started Buying in Turkey
To open a bank account in Turkey in your own name you would need to get
a tax number from a local tax office and then submit it with a copy of
your passport to the appropriate bank branch. Due to strict banking regulations
in Turkey, no one else will be able to withdraw money or view details about
your account unless they have Power of Attorney or are a joint account
holder.
While Turkish citizens and foreign nationals have equal ownership rights,
some provisions of the Title Deeds Law became void on 26th July - thus
suspending all property buying transactions by foreign nationals. However,
a new Act has since been approved and announced in the Official Gazette
(see The law of the land in Turkey below).
Sourcing finance for Turkish Property
A new mortgage law is also expected, with many predicting that lenders will enter the market by the middle of 2006. Historically, mortgage loans to non-nationals have been scarce or unattractive – with low ‘loan to values’ (LTVs), high rates and low terms on repayment only products (usually five years). This means that the best option for foreign buyers is either savings or by remortgaging an existing property at home (those opting for the latter option should account for possible delays in securing funding in the UK as it can take up to two months, although a good broker should be able to speed things up).
Nevertheless, a number of economic reforms are likely to provide impetus for a mortgage market in Turkey. Lower interest rates have created a borrowing boom in Turkey, with banks seeing more credit card business. It is hoped that this cultural change will drive further demand for mortgages and make them a mass market option for Turkish nationals.
Inflation has settled down in Turkey with consumer prices increasing at 7.72%, which is below the 8% official target for 2005 and the lowest for the last 37 years. The government economy taskforce recently announced its target for 5% inflation this year, and 4% for 2007 and 2008 – all of which will improve confidence in its business community.
Foreign buyers themselves are creating new economic conditions by raising property values and feeding the economy by creating new service industries or buying new products. As the price of property rises beyond domestic affordability, mortgages will become the only option for Turkish nationals.
Finally, a major factor for the introduction of a more competitive mortgage market is preparation for a more regulated environment as part of the ongoing negotiation for entry into the EU - although this is due between 2014 and 2020. In the meantime, mortgages are more likely to be introduced as a result of domestic market forces.
The law of the land in Turkey
On 14th March 2005, the Turkish Supreme Court overturned Article 19 of the new Land Registry (Tapu) Act which permitted foreigners to buy in village areas of Turkey rather than just on coastal developments. It also allowed foreigners to own more than 30 hectares of land in Turkey. The same law eased restrictions on foreigners inheriting in Turkey and on the various secondary rights like granting and taking mortgages.
The main reason for this u-turn on foreign ownership was concern expressed by the Main Opposition Party that too much land was being sold off to foreigners. After a three month transition period following publication of the decision in the Official Gazette, the relevant provisions of the Tapu Act became void and property buying transactions by foreign nationals was suspended on 26th July 2005.
This freeze has created a huge backlog of transactions awaiting official approval and, while the process should take no more than 2-3 months, it may be some time before the process returns to normal (there is always the option of setting up a Turkish company to get around the delay but there are set up and administrative costs associated with this).
On 7th January 2005, a new act was announced in the Official Gazette, thus restoring the right of foreign buyers to own property in Turkey. The new law, which is almost identical to the previous act, will cover all applications made from 26th July last year.
There are some restrictions under the new law, with land purchases limited to 2.5 hectares (or 30 hectares with Cabinet Office approval) - although this has not been aimed at foreign buyers or investors in the main tourist areas.
Typical costs buying Property in Turkey
Anyone
from countries with reciprocal agreements for the purchase of land and
property can buy in Turkey – with all taxes and duties paid in Turkey recognised
in the relevant country of origin. Typical costs when buying property in
Turkey include the following:
- Stamp duty (3% of sale price, with 1.5% paid by the buyer and seller)
- Capital Gains Tax (not payable by private purchasers if it is not sold within the first four years)
- Personal income tax (based on rental income and capital gains)
- Corporate tax (a company is exempt from any corporate tax as long as it has been held for at least two years)
- Real estate tax (an annual charge, similar to UK council tax, which is 0.3% for uncultivated land for development and 0.1% for residential buildings – although it can be double in some Turkish provinces)
- Inheritance and succession tax (check with a/your lawyer to make sure your will, drawn up at home, is required in a Turkish court and the tax implications for the heir if the property is sold)
- Environmental tax (taken as part of water utility bills)
- Earthquake insurance (compulsory and at a nationwide contribution rate)
For those who wish to develop land, permission must be sought from local
authorities and proposed building specifications must be in line with official
Construction Plans. Since the building owner is liable for any injury caused
by the property due to poor construction, negligence or misuse, home insurance
is recommended. The threat of earthquakes also means that buildings must
be constructed according to a regulated standard.
It is important to check whether there are any outstanding debts attached
to the property – such as real estate or utility taxes - as the new owner
will be liable for them (a specific clause can be added to the sale agreement,
however, to clarify that the vendor will still be liable). It is also worth
double-checking land registry details to make sure the property is not
owned by more than one person and the address of the property matches that
on the title deeds.
For anything relating to ownership, it is recommended that foreign buyers
seek the advice of an independent lawyer to clarify terms on a standard
Tapu or title deed.
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