VZCZCXRO3349
PP RUEHDA
DE RUEHAK #1395/01 2180756
ZNR UUUUU ZZH
P 050756Z AUG 08
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC PRIORITY 7040
INFO RUCPDOC/USDOC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHIT/AMCONSUL ISTANBUL PRIORITY 4561
RUEHDA/AMCONSUL ADANA PRIORITY 3128
RUEHRC/USDA FAS WASHDC

UNCLAS SECTION 01 OF 03 ANKARA 001395 
 
DEPT PASS USTR FOR MMOWREY 
TREASURY FOR OASIA 
USDOC/ITA/MAC/KNAJDI 
DEPT PASS EXIM FOR MARGARET KOSTIC 
USDA OSEC FOR DEP U/S TERPSTRA 
USDA FAS FOR OA YOST; ITP/SHEIKH; FAA/DEVER 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EINV ECON BEXP TU
SUBJECT: PARLIAMENT AGAIN APPROVES FOREIGN LAND PURCHASES IN TURKEY 
 
REF: A) ANKARA 699, B) ANKARA 723 
 
¶1. (SBU) Summary. In separate decisions in January and April 2008, 
the Constitutional Court struck down portions of both the Title Deed 
Law and the Foreign Direct Investment Law, effectively barring real 
estate purchases by foreign real persons or corporations (reftels). 
In an amendment to the Title Deed Law on July 3, the GOT used one 
piece of legislation to address the concerns raised in both cases 
and brought purchase by both real and legal persons under the same 
legal umbrella.  In the new law, it restored the right to purchase 
property, but placed several new restrictions on foreign property 
ownership by real persons.  At the same time, it also opened up 
previously forbidden military zones to foreign companies under 
certain conditions.  On the whole, it is a positive step toward 
calming skittish investors, but may still be subject to legal 
challenge in the future.  End Summary. 
 
¶2. (U) Following the law's entry into force on July 15, the Land 
Registry Office announced that it would again be taking applications 
from foreign entities for real property purchases.  As the court 
rulings were not retroactive, any land already legally purchased by 
foreign individuals or companies remains unaffected. 
 
New Limits on Purchases by Foreign Individuals 
--------------------------------------------- - 
 
¶3. (U) Under the amendment passed July 3, foreign real persons are 
again allowed to buy up to 2.5 hectares of property (aggregate 
across Turkey).  Previously the Cabinet had been authorized to 
increase this amount to 30 hectares on an individual basis.  This 
discretion was one of the reasons the Court found the previous law 
unconstitutional, and there is no discretion in the new law. 
 
¶4. (U) As under the prior law, all properties acquired by real 
persons must be located within a proper municipal development zoning 
plan (which effectively forbids purchase of property in a village by 
foreigners, as they do not have zoning plans).  What is new is that 
the Governor's Office in each province now will be responsible for 
updating the zoning plan information for the province every year and 
for notifying a commission headed by the Land Registry Office about 
any changes. 
 
¶5. (U) The earlier law set a general limit where only 0.5 percent of 
the "developable" land of a province could be owned by foreign real 
persons.  The Court said that this amounted to all of the 
"developable" land in some provinces with large forests, lakes or 
public land.  Under the new law, within any given development 
plan/town, no more than 10 percent of the land may be owned by 
foreign real persons.  The Cabinet may further restrict the 10 
percent maximum for infrastructural, economic, energy, 
environmental, agricultural, security or cultural reasons. 
 
¶6. (U) As was previously the case, purchase of land by real persons 
in military areas is forbidden.  The Cabinet may also still 
designate other areas as "strategically important" - such as 
watersheds - and sale to real persons in these areas is also 
forbidden.  The Ministry of Defense and the Ministry of Interior 
will provide maps of strategic areas to the Land Registry Office on 
a yearly basis. 
 
¶7. (SBU) Comment: For several reasons, it is difficult to assess how 
restrictive these new requirements for real persons actually are. 
The Cabinet has not yet designated "strategically important" areas, 
nor indicated in which development zones it will restrict foreign 
ownership to less than 10%.  Provinces have not yet published all 
zoning plans.  Published statistics only show the total amount of 
land owned by foreigners in each province, not the percentage of 
land that they own in a given zoning plan, making it impossible to 
calculate how much is still available under the 10% limit. 
According to Director General Mehmet Zeki Adli at the Land Registry 
Office, no zoning plan in Turkey is currently anywhere near the 10 
percent limit, and they do not expect the rule to be a problem for 
individual foreign investors.  Land Registry Office statistics show 
that foreign real persons currently own only 41,723,868 sq. meters 
of land in Turkey (roughly 16 sq. miles), a tiny fraction of 
Turkey's total land area.  However, in some towns with high foreign 
investment (especially along the coast), the percentage restriction 
may inhibit new investment (or force foreigners to consider 
corporate ownership). 
 
¶8. (SBU) Comment (cont'd): The restrictions on ownership by foreign 
 
ANKARA 00001395  002 OF 003 
 
 
real persons potentially violate the terms of the U.S.-Turkey 
Bilateral Investment Treaty (BIT), which states in Article II(1): 
"Each Party shall permit in its territory investments, and 
activities associated therewith, on a basis no less favorable than 
that accorded in like situations to investments of nationals or 
companies of any third country, and within the framework of its laws 
and regulations, no less favorable than that accorded in like 
situations to investments of its own nationals and companies." 
Because the BIT only requires MFN and not national treatment at the 
time of establishment of an investment, however, potential 
violations would seem be limited to cases where existing individual 
investments were not allowed to expand.  End comment. 
 
Almost No Limits for Companies 
------------------------------ 
 
¶9. (U) The new law's approach to companies is very similar to the 
approach which had previously been part of the Foreign Direct 
Investment Law.  The only substantive changes are that military land 
can now be sold to foreign firms (with the approval of the Turkish 
General Staff), land in special non-military security areas can also 
be sold (with the approval of the local Governor) and a new process 
will be set up for provinces to certify that the sale of land to a 
company is not in a military or "strategically important" area. 
 
¶10. (U) Wholly foreign companies (with no subsidiary in Turkey) may 
purchase land only where permitted by other specialized laws, such 
as the Industrial Zone Law, the Petroleum Law or the Tourism 
Incentive Law (this is not a new requirement).  Companies 
established in Turkey with foreign capital may acquire real estate 
in accordance with the business activities set out in their articles 
of association. 
 
¶11. (U) There is no specified limit on how much land may be owned by 
a foreign company established in Turkey nor are there any percentage 
restrictions as there are with real persons.  For wholly foreign 
companies, the conditions of the specialized law permitting the 
company's investment may limit their ownership.  Companies may also 
be excluded, by Cabinet decision, from purchasing in the same 
"strategic areas" referenced in para 6. 
 
¶12. (SBU) According to the Land Registry Office, a committee headed 
by the governor's office will be established in each town to 
evaluate applications for purchase of land by a company to ensure 
that the property is not in a strategic or restricted area.  They 
will then issue a permit that companies can take to the Land 
Registry Office to acquire the deed. The Land Registry Office 
expects to publish in the near future the implementing regulation 
which will allow governors' offices to issue permits to foreign 
companies.  Once that takes effect, there should be no further 
impediment to the acquisition of land by a foreign firm. 
 
Reaction and Impact on Investment 
--------------------------------- 
 
¶13. (SBU) In a conversation about the amendment, Treasury Foreign 
Capital Deputy Director General Murat Alici said the restrictions 
placed on foreigners' property acquisition in Turkey were not 
different from those implemented by several European countries. 
Turkey previously had the most liberal regime, according to Alici, 
and this amendment brought its legislation in line with other 
European countries' standards.  Alici noted that the GOT also added 
provisions to regulate companies' acquisition of property in Turkey, 
combining what had previously been two separate laws.  "In this 
amendment, the GOT addressed the concerns listed in the second 
Constitutional Court ruling referencing the Foreign Investment Law, 
which banned foreign companies' property acquisition in Turkey. 
This amendment also has sufficient language to regulate the 
companies' acquisition, so the GOT may not have to issue another 
amendment for the second Court decision," said Alici. 
 
¶14. (SBU) Business reaction has so far been muted, mainly because 
the ruling prohibiting foreign companies from purchasing land was 
not scheduled to take effect until October.  Several organizations 
we contacted were unaware of both the ban and the new law, and one 
company operating in the real estate sector believed that the 
Court's decisions applied only to foreign individuals.  Other firms 
are still digesting the new requirements.  The International 
Investors' Association (YASED) has established a committee to 
evaluate the impact of this legislation on foreigners' access to 
property in Turkey.  The committee has not finalized its 
 
ANKARA 00001395  003 OF 003 
 
 
investigation yet, but they hope to issue a report soon. 
 
¶15. (SBU) Comment: Much as we would like to say that the ability of 
foreigners to purchase real property in Turkey has been finally 
decided, it is still possible that we will see another legal 
challenge to foreign land ownership.  There is a potential conflict, 
for example, between this latest Title Deed Law and the Foundations 
Law about whether foreign foundations have the right to own real 
property: the Foundations Law says they can under certain 
circumstances, but the Title Deed Law restricts foreign ownership to 
foreign individuals and corporations.  This Title Deed Law is the 
third iteration in five years, and the repeated cycle of 
legislation-court challenge-new legislation does nothing to help the 
atmosphere of legal uncertainty, often cited as a key investor 
concern about investing in Turkey. 
 
WILSON