What You Need to Know about Turkey Increasing Minimum Property Investment for Citizenship
The Turkish real estate sector has experienced significant turmoil since a devastating earthquake in early 2023 destroyed a significant portion of developments in the country. Efforts to rebuild have depended heavily on foreign investment in the country to help restore these developments.
As a means of pushing for greater amounts of foreign investment in Turkish real estate, the nation recently announced that it would require a purchase of at least $600,000 worth of property for foreigners to qualify for citizenship. Previously, individuals would qualify for citizenship with a purchase of only $400,000 worth of real estate. Going into effect in 2024, the $200,000 increase came from the Interior Ministry’s Directorate of Migration.
A Changing Property Investment Target for Turkish Citizenship
In the past few years, the investment minimum for citizenship has gone through a series of changes. In 2018, the minimum investment was dramatically decreased from $1 million to $250,000. This quick and sudden decrease was meant to help save Turkey’s economy by triggering a jump in foreign investment.
According to the regulations at that time, individuals would need to own the investment property totaling $250,000 for a minimum of three years to apply for citizenship. The minimum investment was then increased to $400,000 in 2022 after a successful run of attracting money to the nation. The right to apply for Turkish citizenship among foreign nationals holding at least $400,000 in local real estate was honored until the end of 2023. Now, anyone wishing to apply will need to hit the $600,000 mark. This shift occurs at a time when Turkey is experiencing a decline in its overall volume of property sales.
Since restrictions necessitated by the COVID-19 pandemic were ended, the prices and rental fees for real estate have steadily climbed. Then, the earthquake spread this process up even more and brought shocking spikes in several parts of the country. The increase in price may explain the recent lack of sales to foreigners. Property sales to foreigners in October were 53 percent lower than in the year prior. That month marked a three-year low in volume.
The Recent Drop in Foreign Real Estate Investment Rates
Data recorded by the Turkish Statistical Institute shows that foreign investment in real estate dropped tremendously right after the earthquake. In January, the decrease in sales to foreigners was virtually equivalent to the year prior. However, sales volume to foreigners dropped by 27 percent in February after the earthquakes and by the middle of the year was nearly half what it had been the year prior. This reduction likely relates to several different factors, not least of which was the sharp increase in cost for real estate following the earthquakes.
In this environment, it makes sense to sell rather than buy, so many investors were likely looking for potential buyers rather than making purchases themselves. The inflation that occurs after such an event makes return on investment very difficult. The other factor that needs to be considered is the possibility of additional earthquakes that may threaten investment properties. Many people fled Turkey following the earthquakes, which also reduces the opportunities available for investors to profit on real estate.
Another issue has also been raised. The Capital Markets Board has launched intensive investigations on real estate sales to foreigners after identifying numerous transactions involving manipulation and profiteering. Foreign investors must secure an official valuation on properties in Turkey to apply for citizenship. The valuation process falls under the purview of the Turkish Appraisers Association, which says that valuation reports have been manipulated for profit.
These reports have been found to overstate the value of properties and thus allow investors to secure citizenship unfairly. Already, Turkish officials have issued penalties totaling more than $500,000 with many more cases under investigation. These fines may also have scared off foreign investors and encouraged officials to raise the minimum investment, ensuring that all those granted citizenship are playing by the rules.
The Path Forward for Foreign Investment in Turkish Property
Still, real estate sales for citizenship have been a major source of income for Turkey. In 2022, real estate transactions for Turkish citizenship exceeded $5.5 billion. Even with the sharp decrease in volume seen in 2023, about $3.5 billion worth of transactions were recorded. These numbers may also explain why so many companies engaged in falsified valuation reports. Currently, there are 43 companies under investigation for falsifying valuations out of a total of 155 valuation companies in Turkey.
Moving forward, the country may reinstate a random assignment system for valuation professionals. In 2019, Turkey instituted a system that would use artificial intelligence to assign someone to value a property. However, this system was abandoned in 2021 after getting a significant amount of pushback from investors. Proponents say that reinstituting this system would be one way to prevent further fraud.