VZCZCXRO6896
PP RUEHDA
DE RUEHAK #0699 1051115
ZNR UUUUU ZZH
P 141115Z APR 08
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC PRIORITY 5896
INFO RUCPDOC/USDOC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHIT/AMCONSUL ISTANBUL PRIORITY 4116
RUEHDA/AMCONSUL ADANA PRIORITY 2851
RUEHRC/USDA FAS WASHDC
UNCLAS ANKARA 000699
SIPDIS
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
SIPDIS
E.O. 12958: N/A
TAGS: EINV ECON BEXP TU
SUBJECT: TURKISH CONSTITUTIONAL COURT BANS FUTURE REAL ESTATE
PURCHASES BY FOREIGNERS
1. Summary: On March 11, Turkey's Constitutional Court annulled the
section of the Foreign Investment Law that authorized property sales
to foreigners in Turkey. The ruling will enter into force 6 months
following the issuance of the court reasoning, and it will not be
retroactive. The GOT is expected to prepare an amendment to the
related legislation as soon as the Court issues its reasoning. This
decision is the latest in a series of Constitutional Court rulings
against foreign land ownership, and illustrates well why foreign
investors cite legal uncertainty as one of their top concerns about
investing in Turkey. End Summary.
2. On March 11, the Turkish Constitutional Court annulled Article
3(d) of the Foreign Investment Law No: 4875 that afforded national
treatment to foreign individuals and companies registered under the
Turkish Commercial Code when they acquire real estate in Turkey.
The Court decision came in a lawsuit filed by two members of the
main opposition party, the Republican People's Party (CHP), in 2003.
The ruling is not retroactive and will enter into force six months
after the Court publishes its reasoning in the Official Gazette. It
had not done so by April 10.
3. The Constitutional Court previously has ruled on numerous
occasions against property ownership by foreign individuals. In
those instances, plaintiffs argued that the GOT should observe the
principle of reciprocity when granting access to property in Turkey
and limit property acquisition in village centers and militarily
sensitive areas. After each of these rulings, Turkey's Parliament
enacted new legislation to overrule the Court's decisions. The most
recent Constitutional Court decision, in April 2007, annulled a
provision in the Title Deed Law that authorized the Cabinet to
increase the legal limit on land ownership by foreigners from 2.5
hectares to 30 hectares. Since the 2.5 hectare limit defined in the
law was sufficient for individual investors, and larger
institutional investors' access to property was regulated under
different regulations, the GOT did not take immediate action to
overrule that ruling.
4. The March 11 Constitutional Court ruling that blocks foreign
individuals and companies from acquiring any real property in Turkey
was reportedly motivated by the widespread suspicion that some
foreign individuals/entities were using a related article of the law
to acquire real property in Turkey through shell companies. Turks
are historically sensitive about land acquisitions by nationals of
certain countries, such as Greeks buying property in the Marmara and
Aegean regions, and Syrians purchasing property in the Southeast.
5. Criticizing the Court ruling, Finance Minister Unakitan said
these types of decisions would not help increase investment flows to
Turkey. Unakitan said the GOT was trying to implement an investment
policy that is open to the world, and the GOT would decide on a
course of action after examining in detail the reasoning for the
ruling. Foreign Investors Association (YASED) Secretary General
Mustafa Alper urged the GOT to start preparing a new amendment to
address the Court ruling and argued this ruling would endanger
Turkey's $20 billion FDI target for 2008. In press interviews,
investment bankers commented that this ruling could cause investors
to reconsider their investment plans in Turkey. Combined with
negative global economic trends, this ruling could result in a 20-
25% reduction in investment flows to Turkey, according to investment
experts.
6. This is a good example of why foreign investors cite legal
uncertainties as one of their major concerns about investing in
Turkey (including in a YASED investor survey last year). Once the
legal reasoning is published, it will be up to the GOT to reverse
the ruling within the six month deadline. End Comment.
WILSON