Urban transformation projects in Turkey not only serve the physical renewal of cities but also present significant investment opportunities. Foreign investors have shown increasing interest, particularly in major cities with aging building stock. However, those planning to invest in this area must take into account certain specific legal regulations and risks unique to Turkish law.
1. Legal Framework: Law No. 6306
Urban transformation activities are mainly governed by Law No. 6306 on the Transformation of Areas Under Disaster Risk. This law defines concepts such as “risky buildings,” “risky areas,” and “reserve building areas” and grants public authorities the right to intervene and reconstruct these areas.
Foreign investors can participate in such projects either directly as developers or through partnerships. Due to the need for close coordination with public authorities, partnering with a local company or representative is often advantageous.
2. Property Ownership and Restrictions
Foreign individuals and legal entities are allowed to acquire property in Turkey. However, ownership is restricted in certain zones, such as:
- Military forbidden zones,
- Special security areas,
- Agricultural lands.
Moreover, foreign companies acquiring property are subject to the supervision of the General Directorate of Land Registry and Cadastre, and certain investments may require permits from the Ministry of Environment, Urbanization and Climate Change or relevant authorities.
3. Contractual Rights and Construction Agreements
Foreign investors typically participate in urban transformation projects through “revenue-sharing” or “flat-for-land” construction agreements. These contracts must:
- Comply with the Turkish Code of Obligations,
- Be officially registered at the land registry,
- Include clauses on penalties, termination, delays, force majeure, and guarantees.
To safeguard investor rights, key provisions such as delivery conditions, construction timelines, financial contributions, municipal approvals, and risk assessment procedures should be clearly set forth.
4. Permitting and Licensing Procedures
To carry out an urban transformation project, several administrative steps are required, including:
- Risk assessment reports,
- Demolition permits,
- New construction licenses,
- Zoning plan revisions.
These procedures involve coordination with municipalities, provincial directorates of environment and urbanization, land registry offices, and sometimes the governor’s office. Foreign investors are advised to work with local legal experts familiar with Turkish administrative law.
5. Financial and Taxation Risks
Key financial risks foreign investors should consider include:
- Taxation: Revenue-sharing projects may trigger obligations for VAT, corporate income tax, stamp duty, etc.
- Double Taxation Treaties (DTTs): If a DTT exists between Turkey and the investor’s home country, tax reductions or exemptions may apply.
- Currency Risk: In rental income models, using Turkish Lira may lead to losses due to exchange rate fluctuations.
6. Dispute and Arbitration Risk
Given their long-term and multi-party nature, urban transformation projects are prone to disputes between investors, landowners, contractors, or public authorities. Therefore:
- Contracts should clearly specify whether Turkish courts or international arbitration will be used,
- Dispute resolution methods should be predetermined,
- Provisions on delay, breach, force majeure, and guarantees must be carefully drafted.
These legal precautions are crucial for protecting the investor’s interests.
Conclusion
While urban transformation projects in Turkey offer strategic and high-yield investment opportunities, they also involve complex legal and operational risks for foreign investors. Before engaging in such projects, investors should conduct a thorough due diligence process and seek professional legal counsel on ownership, contracts, permits, taxation, and dispute resolution.
Success in this area depends heavily on well-structured agreements and effective legal risk management.
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