Turkey Has Tightened the Rules on Short-Term Lets. What Should Investors Do?

Turkey has tightened the rules on letting property to tourists. The text of the law has already been published on the website of the official press organ of the government Resmî Gazete. According to the amendments, property owners that want to let a flat or house for less than one hundred days must obtain a permit from the Ministry of Culture and Tourism, as well as a licence for work and doing business. The landlord will also have to obtain the permission of all the flat owners in a building and hang an information plate on the door. Fines are stipulated for any violation of the rules of up to 1 million Turkish lira (USD 35,270). The law will enter into force in full on 1 January 2024.

Housearch asked Julia Donskaia, expert on real estate investments in Istanbul and author of her own investment channel, what will happen now to the market for short-term lets in Turkey and what anyone who has already invested in this strategy should do.

Julia Donskaia
Expert on real estate investments in Istanbul

Were Things Actually Better in the Past?

The new tightening of the law on short-term lets cannot be called anything other than extraordinary. This market segment was already stringently regulated: individuals have not been able to let flats on Airbnb since 2017, while Booking.com was actually blocked in the country by a court decision and is only accessible to foreign tourists. In other words, previously short-term lets did not provide an easy way to make money.

Incidentally, the local population is not that fond of letting property, including long-term lets. In view of the shortfall in available real estate, this became a problem at one point — in Istanbul alone they counted 700,000 “ghost houses”. The authorities are even discussing the possible taxation of vacant properties.

Why don’t people want to let their properties? Turkish law always sides with the tenant: it is hard to evict a bad-faith tenant even if they don’t pay rent. On occasion respective court proceedings can drag out for years. Afraid of such an outcome, many owners prefer to leave their properties vacant.

If we are talking about foreign investors, however, as a rule they reassign all the bother related to letting to specialist real estate management agencies. These companies have respective licences and observe the rules. 

Naturally income after work with the intermediary may be lower than expected. However, I don’t know a single foreign investor who would let out a property independently. This is attributable to a number of factors: from the fact that a foreigner is not interested in spending time and money on endless flights and settling all the formalities (as they don’t live in Turkey) to the fact that a foreigner can find it hard to fight for their rights, and if they are found to have broken the law, can face serious penalties, up to and including imprisonment.

Why Are They Tightening the Rules on Short-Term Lets?

Turkey is a tourist country and the interests of hoteliers are always taken into account. It is namely due to the hotel lobby that the amendments were adopted. Owing to price growth, hotel occupancy rates this year contracted by 50-60%, which is at variance with data on the number of foreigners who have arrived. It has to be assumed that tourists have rushed off to the private sector while the extent to which they have been renting property legally is open to question.

In addition, another important issue for Turkey cannot be ruled out — the fight against illegal migration and safety. Turkey has always been considered a buffer zone and it is well-known that there are a lot of refugees and non-residents from Syria, Palestine, Iran and Iraq in the country. They are all rushing to Turkey as a country propagating similar beliefs. Now the situation has been stoked, inter alia, by the conflict which has broken out in the Middle East. Traditionally EU countries are interested in Turkey taking on the migration load in their place, and have concluded specific official understandings with the country on this score.

Against this backdrop, the stringent regulation of short-term lets has been transformed into a necessity owing to safety considerations. From the state’s perspective, the uncontrolled illegal accommodation of non-residents in the private sector is unacceptable.

Will the Market for Short-Term Lets Dry Up?

I have already mentioned that previously a short-term let in Turkey was not a simple strategy for the investor. But what has changed after the adoption of the amendments?

The first issue concerns the introduction of the concept of a one-hundred day period. In other words, any let for less than one hundred days now is automatically viewed as a short-term let. The second issue concerns the increase in the level of fines for violations of the rules on short-term lets to 1 million Turkish lira. The third sensitive issue concerns the requirement that all the flat owners in a building must agree to the let of a property there. This will affect the segment of investors who let out properties for short periods in blocks of flats in dormitory suburbs.

What is the underlying message of all these amendments? An investor must select in advance real estate which fits the strategy they have chosen — in this case, short-term lets. There is one agreeable factor here: in Turkey you have more than enough hotel-style buildings. This status is not covered by the concept of residential premises. Therefore, whoever wants to deal in short-term lets should opt for such projects and avoid letting real estate to tourists in dormitory suburbs.

What Should Anyone Focused on Short-Term Lets Do?

In this situation investors can benefit from real estate management agencies. It is highly unlikely that anyone planning to work with them will have anything to worry about. As these companies run a business in a risky area, you can expect them to find solutions to protect their incomes and those of their clients: the most obvious being to recommend clients to buy real estate that is most suitable for short-term lets.

In all other respects Turkish management companies assume all the formalities. They offer investors a convenient format for a “guaranteed rental”. This is the method for obtaining net passive income: at first glance, it may look small — 5-7% interest per annum. On the other hand, you need to bear in mind that as a rule here the investor does not have to worry about the premises after the purchase: the investor doesn’t spend money on marketing, does not place ads, is not worried about property maintenance issues and is not concerned about the payment of taxes — this is also handled by the agency. It is often the case that the investor does not even have to furnish the flat as this can be handled by the property developer. That is why a “guaranteed rental” is the ideal option for a foreign investor. Furthermore, in Turkey you can earn double the income in this way due to hyperinflation: while the flat is being let, its price appreciates.

The home office format for letting premises to legal entities works in a similar way. This is a type of office property where employees both work and live. Please note that a home office is not covered by the short-term letting rules: only non-residential premises are suitable here.

A third option is to avoid short-term lets. Letting is not something you should practice independently in Turkey. Such a strategy is more relevant in developed countries in Europe and the USA. On the other hand, in developed countries, you cannot make money from property price growth, whereas you can in Turkey.

If You Have Already Bought a Property for Letting, Should You Sell It Now?

If you already own real estate in Turkey for letting purposes and are worried about the consequences of the amendments, you should not rush to do anything. It is not the best time to sell right now: the market has stagnated due to some of the steps taken by the authorities. Firstly, this is due to the need for a price correction after anomalous growth in 2022. For the time being there is a freeze on the granting of loans to the population. Locals are the main buyers on the market, and they prefer to take out mortgages. That is why Turkish citizens aren’t interested in buying properties at present.

If an investor is able to make the transition and work according to the new rules, they should switch to them. Otherwise, the investor can focus on long-term lets or simply wait for the right time to sell.

Cover photo: pxhere.com