Foreign citizens have displayed growing interest in real estate since the legal regulation enacted in 2012, and the decision to grant foreigners owning real estate in Turkey a one-year residency permit in August 2013 has accelerated residential sales. While Istanbul presented the highest quantitative increase with 2,464 residences in the last year, Antalya once again became the most popular choice for foreigners, as always. The first legal regulation concerning real estate sales to foreigners was enacted in 1934 throughout the Republican period. Although certain modifications were performed in 2006-2008 and the total purchasable real estate value reduced from 30 hectares to 2.5 hectares, the regulation enacted in 1934 continued in general terms until 2012. The most radical change in this regard was Law no. 6302 Amending the Land Register Law and Cadastre Law issued in the Official Gazette no. 28296 on May 18, 2012. This legal amendment on the one hand abolished the restrictions arising from reciprocity and on the other hand stipulated new regulations on real estate purchases by foreigners. SALES ABOUT TO REACH $4 BILLION Although the regulation on real estate sales to foreigners entered into force on May 18, 2012, the regulation became effective with a three-month delay since the list of beneficiary countries was not published. In a press statement given on August 8, 2012, Ministry of Environment and Urban Planning announced that the list, communicated exclusively to the relevant land registry directorates and Ministries as ‘Confidential’, contained 183 countries. Powerful expectations regarding real estate sales to foreigners had to defer to some extent when the regulations began to be practiced in the final quarter of 2012, and due to reasons such as FED’s announcement to stop monetary expansion in May 2013 and Gezi Parkı protests. However, real estate sales to foreigners boosted both quantitatively and in terms of sales revenue as of the final quarter of 2013. In our opinion, entry into force of the law granting a 1-year residence permit to the foreigners owning real estate in Turkey on August 24, 2013, also played a significant role in this picture. Results indicate that the quarterly average sales revenue had been $697 million for the 12-month period from the final quarter of 2012 to the first three quarters of 2013 whereas the same revenue exceeded $1 billion throughout the 9-month period from the final quarter of 2013 to the first half of 2014. If such a performance can be maintained, real estate sales to foreigners realized as approximately $3 billion at the end of 2013 can be expected to exceed $4 billion by the end of 2014. REAL ESTATE PURCHASES BY FOREIGNERS SOARED BY 65% The nine-month period of the last year had witnessed a total number of 862,381 residences sold whereas 831,287 residences were sold in the corresponding period of the current year. Sales contracted by 3.6%; however, purchases by foreigners, which hold a share of approximately 1.6% in total sales, soared by 64.7%. 8,263 residences were sold to foreigners throughout the nine-month period in 2013, and sales reached 13,611 in the corresponding period in 2014. The sales realized throughout the nine-month period in 2014 thus outpaced the number of sales realized for the whole of 2013, which amounted to 12,181. Figures display an interesting picture when considered according to provinces. Antalya witnessed the highest number of residences sold to foreigners and ranked top with a 36% share, Istanbul followed Antalya with 29% and Aydın ranked third with 6.6%. Trabzon presented the highest increase by 386.7%, and Istanbul reached the most outstanding figure of 3,990 residences sold, with an increase by 161.5%. Muğla, Mersin, Bursa and Yalova were other popular provinces preferred by foreigners. Foreigners demanded particularly summer villas, owning more than 40,000 residences only in Antalya according to the data issued by the Ministry of Environment and Urban Planning. Likewise, foreigners own approximately 30,000 residences in the vicinities of Muğla and Aydın. YOU MAY SHORTLY HAVE A BRITISH NEIGHBOR After August 2013, residence permits are now granted for one year to foreigners owning real estate in Turkey, and it is renewed every year unless the real estate is sold to another person or entity. This implies that we will shortly have a British, Russian or an Arab neighbor, and we should get used to it. The British rank top as the nationality with the highest number of residences (34,355) owned in Turkey as of August 31, 2014, according to the data issued by the Ministry of Environment and Urban Planning. Russians and Germans follow the British with 11,770 and 10,144 residences, respectively. Although the ranking may vary over the months, the top three remain the same. FOREIGN INVESTOR IS A MUST FOR SUSTAINABLE GROWTH As with each industry, foreign investors are needed for the construction industry to grow in a balanced and sustainable way. While the arrangement in the reciprocity law increases the demand of foreign nationals for real estate, it also contributes to the sustainable growth in the construction industry. With the amendment on the law which facilitates the purchase of real estate by the foreign nationals (Reciprocity Law), we have observed that the increase trend started in real estate investments has also continued in 2013 and 2014. As it is reviewed in detail in the Industrial Analysis section, we discussed the burning questions in this regard with Selim Akın, Vice Chairman of Akfen Holding, one of the leading companies in the industry. First of all, can you say if the amendment on the reciprocity law has created the expected effect? Priority should always be given to growth in the Turkish economy. Recently, we have observed that particularly the construction/residential sector has assumed a role of leverage for the economy of our country with their added value and employment opportunities. Yes, the need for housing will never end in Turkey. However, it is too difficult to achieve a balanced and sustainable growth for the industry only with domestic consumption. We therefore need foreign investors in almost every field but particularly in the construction/residential sector for our growth performance to reach desired levels. On the other hand, foreign investor perception for the Turkish market will continue to progress positively in the mid- and long-term thanks to the strong economy and demographics of our country. In which areas did the reciprocity law create a demand for real estate the most? We observe that the foreign nationals take an interest in the residential sector particularly. The preferred places for making investment are generally coastlines, touristic places and major cities. We can say that there are investors of European origin particularly in the cities of Southern Aegean and Mediterranean Region in the field of real estate. The interest of foreign investors in the immovable in Turkey continues with an everincreasing trend. It constitutes an important item with regard to the direct investments that we long for in the economy. Considering the last two years (particularly after the law came into effect and was heard), it is possible to say that there is a constant increase in the investments made for purchase of real estate. We can observe that the investments in this field have the biggest increase rate in total direct foreign investments. What needs to be done to keep the demand active for real estate? As the effects of the crisis in the EU have not worn off yet and there is a weak trend in consumption and spending, we can say that the rate of increase in the investments from this region is limited. However, a recovery is expected in the demand and spending in the last quarter of 2014 and next year along with the new package implemented by the European Central Bank (ECB). This will have positive reflections on real estate sales in Turkey. Furthermore, the demand from the neighboring countries as well as Arabian and Gulf countries such as Saudi Arabia primarily will remain to be active. The increase in capital inflow and the immovable is promising and can be considered a leading indicator that it can increase even more in line with the developments in the global conjuncture.