GUIDE TO BUYING A PROPERTY IN TURKEY

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1 GUIDE TO BUYING A PROPERTY IN TURKEY

2 Introduction Foreign citizens are increasingly drawn to purchasing property in Turkey, particularly along its southern and western coasts. With its immense unspoilt coastline and its wonderful Mediterranean climate offering year-round sunshine, it is becoming well established as a firm favourite for both holidays and second home ownership. The property market in Turkey offers an excellent opportunity for investors looking to buy residential or commercial property - many compare the current market potential to that offered by Spain some 15 years ago. Even at the hot spots like the sea and mountain resorts, the prices are some of the lowest in all of Europe; however, unlike much of Europe, the offplan market is still very much alive in Turkey, with investors drawn to low entry level prices and the capital appreciation potential. The improving bank services are another reason that attracts investors, with competitive mortgage loans being made available to foreign investors only recently. Relatively speaking, however, the Turkish second home market is still in its infancy and the majority of potential buyers have limited knowledge about property purchasing procedures, with many assuming these are complex and time consuming. The fact is, whilst the process is different for non residents, it is relatively straightforward and painless, as long as you are accompanied by the appropriate professionals to assist you. The following information is a step by step guide to understanding the property purchasing process: 1) The Buying Process 2) Property Purchasing Costs 3) Residence Permits 4) Mortgage Issues 5) Property Tax Guide 6) Inheritance Issues

3 THE BUYING PROCESS The purchase of a property begins once a verbal agreement has been made between the seller and the buyer (usually through an agent acting as an intermediary). The property is then taken off the market, subject to payment of a reservation fee (normally around Euros). The intermediary will then request a copy of the title deed (Tapu) from the seller in order that preliminary land and title searches can be made. These searches will determine that: 1) Seller owns and has the legal rights to sell the property. 2) Property is legally available for sale. 3) Property is not within a restricted or non-authorised zone. 4) There are no outstanding debts on the property. The reservation fee is refundable if the seller withdraws from the sale. It is normally nonrefundable if the purchaser withdraws from the sale. Tax Number At this point we will visit the local Tax Office in order that the buyer / s can be issued with a Tax Number (this number has no taxation implications it is a personal identification number issued for security purposes). This number is required in order to process the Tapu transfer. It is also a pre-requisite for a Turkish bank account and for a Residency Permit. It is not compulsory to have a bank account in Turkey it does, however, have its advantages: for example, it will allow for international money transfers, setting up of direct debits to pay utility bills, proof of funds when applying for residency permits, deposit facility for rental income (if applicable). Sales Contract A sales contract will be prepared relating to all interested parties the vendor, purchaser and intermediary (agent). The contract will include include all relevant property information, vendor, purchaser and intermediary information and the appropriate stage payments. The contract will be in both Turkish and English (or alternative native language) English or native language only contracts are not recognised in Turkish property law.

4 Military Permission All foreign individuals buying property in Turkey have to apply for official permission (to buy) from the military authorities; this is simply to ensure that the property (subject to contract) is not located within a restricted or non-authorised zone. Once this has been ascertained, the authorities will issue an official document stating that the individual / s is allowed to buy the property stated within the sales contract. Ordinarily, the buying permission process takes around 6 8 weeks (from application to official permission being received). However, recognising that most foreign buyers buy new (or newer) property, the process has recently been revised for all applications in relation to property built after April 2011, military permission is now property dependent and not person dependent. So, if permission has previously been given to one individual buying in a specific development (built after April 2011), then this permission will automatically be granted for all other persons buying in that same development. Once official military permission has been received (and assuming all land and title searches are complete ), the intermediary will then commence the process for Tapu transfer and assignation of utilities (water and electricity) subscriptions in the buyers name. All residential property - houses and apartments - in Turkey are freehold this means that an apartment owner will own the apartment and a percentage of the land on which the apartment building is located. As the property is freehold, there are no ground rents to pay. Tapu The Tapu is a document that shows legal ownership of a property (equivalent to Title Deed). The information contained within this document is the same as that recorded at the Land Registry Office this information includes Property Address, Size (m2), Land Plot (on which the property is situated), Current Owners etc. This document is transferable each time the property is sold on. For all newly built properties, the Tapu is issued after satisfactory inspection by the Building Inspections authority; this inspection is to ensure that the property has been constructed in accordance with both the submitted plans and the current building regulations.

5 PROPERTY PURCHASING COSTS (all are one off costs). Tapu Transfer Tax: All property purchases are subject to a Tapu transfer tax of currently 4.0 % of the declared value of the property. Whilst the purchase price will be paid in Euros, the declared Tapu value will appear in Turkish Lira. For example, whilst the purchasing price may be 50,000 Euros, the Tapu value may be shown as 100, 000 TL therefore, the 4.0 % levy will be 4,000 TL. This is paid prior to transfer of title deed (Tapu) to the new owner. ISKAN Habitation Certificate: approximately. Utility Subscriptions: Fixed Cost. Notary and Translation Fees: approximately. Therefore, all buyers should allow approximately 3,000 3,500 Euros for legal fees (depending on purchase price). This includes costs for title deed transfer (as detailed above), stamp tax duty on this transfer, issue and transfer of habitation certificate, services of public notary (for Power of Attorney if required), translation costs and utility subscription fees. Annual Fees Real Estate Tax: This is a tax similar to the UK council tax; this currently stands at 0.02% of the declared Tapu value of the property. For example, on a property with a declared value of 100,000 TL, the real estate tax liability would be 200 TL per annum. This tax is payable in 2 instalments to the local municipality; the first instalment is paid between March May and the second between October - November. Waste Clean Up Tax: Approximately 50 per annum. Maintenance Fees: Depending on property size and on-site amenities, buyers can be expected to pay around: For 1+1 Apartment: per month. For Apartment: per month. For Apartment: per month.

6 RESIDENCE PERMITS Currently, visitors entering Turkey on a tourist visa can stay in Turkey for a maximum of 90 days in any 180 day period these days do not have to be consecutive. For those individuals wishing to travel to and from Turkey without any restriction, we would advise that they obtain a Residence Permit. These are normally issued with a validity period of 1 year. Costs vary depending on which country the applicant normally resides however, as a guide, citizens of most Europeans country pay 25 $ for the 1st month of residency and 15 $ for each month thereafter. So, for a 1 year permit, these citizens would pay 190 $ (payable in TL on the day the application is submitted). In addition, there is a cost of around 170 TL for the actual permit (blue book). This book has a life of 5 years so the 170 TL is payable again only when a new book is issued. Those individuals applying for a permit must be able to produce: - Application Document. - Copy of main page in Passport and copy of page showing most recent entry Visa. - Copy of bank statement showing a balance of 500 $ per month for each month of residency (so, 6000 $ balance if applying for a 1 year permit) - Copy of Tapu. - 2 passport sized photographs. Permits are normally issued around days after application (and payment) is submitted. MORTGAGE ISSUES Most of the major Turkish banks ( and European banks based in Turkey) can offer mortgages to non-nationals, including HSBC, Garanti Bank, Denizbank and AK Bank. Please note, however, that mortgage applications are generally considered only if the Seller (or Seller s representative) holds the appropriate Tapu for the property being purchased Therefore, given that the Tapu is only issued once construction is completed (and approved by the Building Inspections Committee), mortgages would not normally be available for those properties being purchased either off-plan or in the early stages of construction. *

7 *However, a significant proportion of property in Turkey continues to be purchased either off-plan or at the early stage of construction. As long as a Buyer (requiring a mortgage loan) is able to self-finance a minimum of 50% of the purchase price, then developers will allow a flexible payment plan; the self-financed portion of the purchase price is paid in instalments over the duration of the construction period and the balance cleared with a mortgage loan some time after construction completion (this loan is applied for as soon as the Tapu has been issued). All mortgage loan applicants (for both new build and completed properties) must be able to self- finance a minimum of around 50% of the total purchase price. The term of a typical mortgage will not exceed 10 years and the minimum value loan is around 30,000 Euros. Mortgages are normally arranged on a repayment basis and it is sometimes possible to arrange a fixed term deal for the duration of the term. Applicant must have Tax Number and Military Permission to purchase should be in place at the time of application. If two names are to appear on the Tapu (shared ownership of property), then a joint mortgage application should be made. If just one name is to appear (sole ownership), then the mortgage application should be in that individual s name only. PROPERTY TAX GUIDE What gains are attainable through property? Are these gains taxed? There are two types of gain: Rental Income and Capital Growth.

8 Rental Income: The first 2600 TL of annual income is exempt from taxation. There is also a capital expenses allowance based on 25% of the income. The balance is then subject to the Personal Income Tax (PIT) rates applicable at the time (the base rate is currently 15%). In those cases where the property title deed is in the name of a company, taxation on rental income is levied at 20% (again after the exempt and the capital allowance amounts are deducted). Capital Growth: If an immoveable asset (property) is sold within 5 years from the date of acquisition, then the sale is subject to capital gains tax based on the current Personal Income Tax (PIT) rates that apply at the time of sale. No CGT is payable if a property is sold after a 5 year period. If CGT is payable, this will be based on the difference between the selling price and the inflation adjusted acquisition price. No CGT is paid if inflation is calculated at 10% or above. The first 7,700 TL of any gain is exempt from taxation. INHERITANCE ISSUES If a property owner were to die intestate (i.e. without having made a will), then the Turkish Civil Code is applied in terms of inheritance of immoveable assets. Please note that any children will be the first statutory heirs and that there will always be a reserved portion of the asset that is granted automatically to any children. In the absence of a will, the property will be divided as follows: - if the property is in the deceased s name only, then the chidren of the deceased shall inherit the property in equal shares. - if the property is in joint names, the spouse will legally retain only a 50% of the property. The children of the deceased would inherit the other half of the property. - if the deceased has no surviving next of kin then the spouse receives everything. If there are no surviving heirs then the property passes to the state.

9 To effect property transfer pursuant to an overseas will, any heir/s must produce a will that has been witnessed and undersigned by a registered solicitor and then apostilled (notarised) by the legal department of the Turkish Consulate (Foreign and Commonwealth Office for UK wills). This must then be sent to Turkey and translated into Turkish by the public notary s office before being submitted to the local relevant municipality (where the property is located). The local court will then issue an official authorisation of transfer to the Tapu office. The simple solution here is for all property owners to effect a new will (in Turkey) that relates ONLY to their newly acquired real estate asset/s in Turkey. This avoids the complexity of effecting an overseas will and ensures that only nominated beneficiaries inherit any assets. A Tapu transfer levy of 0.9% of the value of the property is applicable at this point. (As an example, if the declared value of a property is 50,000 TL, then the transfer levy would be 450 TL). In the case of inheritance, the right of inheritance must be declared within the following periods: Where death occurs in Turkey and the taxpayer (inheritor) is outside of Turkey, the declaration period is 6 months. Where the death occurs outside of Turkey and the taxpayer is outside of Turkey, the declaration period is 4 months. (assuming both parties are in the same country). Where the death occurs outside of Turkey and the taxpayer is in another foreign country, the declaration period is extended to 8 months. Saray Mah., Yunus Emre Cad. No. 34/A, Alanya, Turkey