New rules for the purchase and sale of real estate have come into force in Turkey for foreigners

The new rules came into force on March 4, 2019. They are described in more detail in Circular No. 1795. In particular, we are talking about the mandatory receipt of an expert assessment of Turkish real estate that a foreign citizen intends to buy or sell.

New rules - new tax policy

The introduction of new rules of the game will allow the state to bring the Turkish real estate market into compliance with international norms and rules, as well as collect statistical data on the real cost of housing in each area. The latter will make it possible to more correctly apply tax policy and receive additional revenues to the budget.

Before Circular No. 1795 came into force, the tapu (certificate of title for real estate in Turkey) indicated the undervalued property on which purchase tax was payable. Now, when registering real estate, a foreign citizen must receive an expert report with the real cost of housing indicated in it. And based on this amount, pay tax on registration of property rights.

At the moment, the tax has been temporarily reduced to 3% of the value of the property, and this rate will be in effect until the end of March 2019. From April it will be 4%.

There is also an income tax for developers and owners of secondary real estate who have been its owners for less than five years. It is 20% of the difference between the purchase price and the sale price. According to the laws of Turkey, only after five years of ownership of real estate, its owner is exempt from this tax.

For example, a person bought an apartment in Turkey and showed an undervalued price of 100 thousand liras. Two years later I decided to sell my property. He receives an expert assessment from an accredited company (today an assessment is also required when selling an apartment) stating that the cost of the apartment is 300 thousand liras. Now the object must be sold for this price, and this is the amount indicated in the tapu. There was a documented difference between the purchase price and the sale price of 200 thousand liras. Nevertheless, the seller must pay income tax on this difference in the amount of 20% - in this case 40 thousand liras.

If the examination indicated a value higher than the one for which the owner is actually willing to sell the apartment, then he can indicate in the tapa the lower value he needs, but tax must still be paid on the difference with the amount of the expert assessment. The seller must also be prepared for possible tax audits.

Of course, the state understands perfectly well what the rules of the game were in the market before, and experts expect that it will not be so scrupulous in checking transactions. But in fact, no one knows what will happen in reality.

A foreign citizen is not alone in the field

Now a foreign citizen who decides to buy or sell real estate in Turkey will not be left alone with the unfamiliar Turkish system, with unscrupulous realtors or developers. He will have in his hands an expert’s report indicating all the characteristics of the purchased object.

The assessment is issued by licensed companies of the Banking Regulation and Supervision Agency (BDDK), as well as the Capital Markets Council (SPK).

The examination is paid. Its cost depends on the area where the property is located and the municipality’s fees when issuing documents to experts. Today it averages 1 thousand liras, including VAT.

The examination must be paid for and completed before submitting documents for registration of tapu. The law does not regulate who should pay for this examination, and for now this is left to the agreement of the parties. However, it is worth taking into account that traditionally additional costs associated with the purchase of real estate in many regions are borne by the buyer, therefore the payment for the examination can also be charged to his account.

The report is valid for three months from the date of issue.

The assessment will contain the following information:

• cadastral data of the site on which the property is located;
• the area of ​​the land that belongs to the new owner (proportional to the size of the purchased housing);
• type of object;
• presence/absence of an act of commissioning of the house in which the object is located (iskan) and permission to use the property or its independent part;
• The assessed value of the property, indicated in lira. If the object has not yet been built, the expert report will indicate its future value, that is, the price at the time the object is completed;
• plan of the object and its area;
• presence/absence of all possible types of encumbrance on this property;
• description of the area in which the object is purchased to determine its future liquidity, etc.

Lira prices will rise

With the introduction of the new circular, the value of real estate in lira will increase. And above all in the primary market. Developers, focusing on the new rules, will include the amount of income tax in the price.

There is also a possibility that foreign citizens who decide to buy housing from a developer will face a refusal from him. The fact is that today there are developers on the market who have already built residential complexes, indicated a reduced cost in the documents and put the properties up for sale. But the adopted new rules of the game oblige developers to show the real value of real estate to any foreigner who decides to buy from them. And the company may have a dilemma: sell and pay income tax or refuse the foreigner altogether.

However, due to the crisis in the country and the small number of buyers among Turks, many developers confirm their willingness to continue to cooperate with foreign citizens.

In addition, Circular No. 1795 is only the first step of the state. By the end of this year, the Turkish authorities intend to introduce these rules for Turkish citizens. A pilot project is starting today in Ankara, in the Canka district. Now, in order to sell or buy real estate, Turkish citizens are required to obtain an expert assessment of the property. And thus, by the end of 2019, the provisions of this law will apply to all buyers.

If you look at the law on a scale, then this is the right step - towards a civilized real estate market. Of course, there are a number of disadvantages and shortcomings, since the law was adopted within two weeks, so, most likely, certain changes can still be made.