Turkey Raises the Investment Threshold for Residence Permits. How Will This Affect the Market?

Turkey has taken another step that makes it harder to obtain a residence permit. The country adopted the first measures in summer 2022 after a vast inflow of migrants and expats into the country owing to global political instability, with rental prices rising in leaps and bounds. 

Initially the Turkish authorities imposed restrictions on the acquisition of a resident permit in districts where registered foreigners accounted for more than 20% of the total number of residents. Subsequently, there was an increase in the number of instances where the authorities refused to issue initial tourist resident permits — the most affordable type of resident permit. Then, effective 16 October 2023 the authorities raised the minimum real estate investment threshold for anyone wanting to get a resident permit to USD 200,000. 

Julia Donskaia, expert on real estate investments in Istanbul and author of her own investment channel, shares here specially for Housearch her views on how the increase in the investment threshold for resident permits will affect the Turkish real estate market and whether we should expect to see an increase in the current bar for golden passports.

Julia Donskaia
Expert on real estate investments in Istanbul

What Has Changed in the Rules on Obtaining a Resident Permit for Investments?

Effective 16 October 2023 the minimum real estate price that an investor must pay to be eligible for a residence permit equals USD 200,000. From 26 April 2022 to 15 October 2023 the bar had been set at USD 75,000 for big cities and USD 50,000 for small population centres. The new threshold does not distinguish between big and small cities and applies to the country as a whole.

There is one important nuance — the authorities will only consider the cadastral value when considering resident permit applications. In other words, this is the figure designated in the Tapu (title deed). Previously investors could obtain a residence permit based on the real estate appraisal of the purchased property. The currency exchange certificate must also confirm the figure of at least USD 200,000. There is one positive factor here — the title deed is drafted for one investor/owner of the property to obtain a residence permit, but the investor’s family can also receive residence permits together with the investor. Whoever closed a deal before 16 October 2023 can apply for a resident permit based on the previous limits.

What Is the Driver of the New Amendment?

Recently Turkey has had to deal with a vast influx of migrants from different countries and even different cultures. The country has always been a place of shelter for refugees. The safety and protection of the interests of the local population play an important role for Turkey, all the more so as the conflict in the Middle East presages a new wave of migration. Meanwhile it is already virtually impossible today to obtain a tourist residence permit issued on the basis of a tenancy agreement.

However, there is also another problem — tax evasion through an understatement of the cadastral value of the real estate. In particular, it is characteristic for housing on the secondary market. After the appearance of the new amendment, buyers interested in obtaining a residence permit will simply refuse to buy real estate if the price according to the title deed does not meet their goal. Although there is a limited number of foreign buyers on the Turkish market — 4.5% of the total — the authorities are tackling the tax issue seriously, developing different enforcement actions.

How Will the New Rules Affect the Activity of Investors?

If we are talking about Istanbul, then increasing the bar will not affect investor demand for two reasons. Firstly, in general foreign investors rarely buy real estate to obtain residence permits. They are driven by the goal of making money, and not living in the country. In this case, it is highly likely that a residence permit is a pleasant bonus. In all other respects investors act based on the forecast rate of return.

This leads to the second reason: real estate properties on the primary market located in a good and promising district can deliver a high rate of return. In the case of Istanbul, the price of USD 75,000, to put it mildly, has not been on offer on the market for a long time. You can only find a flat from a property developer at such a price in districts considered to be dangerous. The price of real estate, which is suitable if you want to make money outside the city centre, starts at around USD 150,000, whereas USD 200,000 is coincidentally the current price of Turkey’s major megapolis.

Anyone interested in buying property in exchange for a residence permit is another category of buyer. Usually, as the phrase goes, they go “for the lowest option available”. You won’t be able to buy new properties in Istanbul for this money — you can only find them on the secondary market. However, this market segment is incidentally the one where investors frequently try to avoid paying taxes. As a result, an individual would still buy property for the same USD 150,000, but the value in the title deed would be understated to USD 75,000. In other words, I can say confidently that demand for new investment real estate in Istanbul will not suffer owing to the increase in the threshold for a resident permit.

What About on the Coast?

Istanbul differs from the rest of Turkey in that they don’t underestimate the cadastral value for new real estate here. Virtually all the property developers indicate the full price in the contract. It is a completely different situation on the Mediterranean Coast where they tend to understate the price of properties even on the primary market in the contract — in some cases this can equate to 50% or 30% of the actual price.

In the opinion of local experts, property developers on the coast — for example, in Antalya — are not ready to adapt to the change in the threshold for resident permits and start indicating in the contract the full price of the real estate. For if they do, they will have to pay tax at a higher rate (if real estate is bought on the primary market, it is shared equally between the seller and the buyer). A scenario is likely where property developers might raise the real estate prices by the tax rate.

However, price growth is useful in the resort market: today it is experiencing a fall. A price correction might have a favourable impact on the situation.

Initially a Work Permit and Then Citizenship?

So the increase in the threshold for a resident permit is not affecting investors in Istanbul. However, such news tends not to appear in isolated instances. We cannot rule out the possibility that the increase in the threshold for a residence permit might be followed by an increase in the minimum amount that investors will have to pay to be eligible for Turkish citizenship.

It is true that the authorities already raised the bar in July 2022, but they could also raise it again — already next summer. At first glance, USD 400,000 (the minimum threshold for investments in real estate required if an investor wants to apply for Turkish citizenship) is a significant amount. However, one should not forget that until the decrease in 2018, the threshold for obtaining a golden passport equalled USD 1,000,000. Considering the inflow of migrants experienced by Turkey in 2022, it is entirely possible that the Turkish authorities might opt to return to this figure.

What does this mean for the market? Investments are always a story about the right moment and the speed of decision-making. It is possible that against the background of this news, people who thought a long time ago about Turkish citizenship, but did not rush to do so, will become more active today. And it looks like now is the time to decide. It is highly likely that the market will attract a wave of such buyers.

Cover photo: Istanbul. wirestock (Freepik)