By EB5 Investors Magazine Staff
After a tumultuous year in which thousands of high net worth individuals left the country, Turkey’s government is hoping to raise as much as $1 billion a year through a new citizenship-by-investment program.
The new program, which was formally introduced in January and opened to investors in June, offers Turkish citizenship to anyone who buys $3 million in government bonds, deposits $3 million in a Turkish bank, makes a capital investment of $2 million, creates at least 100 jobs, or invests $1 million in real estate. To qualify, investments must be structured in such a way that they cannot be divested for at least three years.
Of the various investment options, real estate is expected to be by far the most popular, chiefly because of the much lower cost. That’s by design, says Ali Guden, a lawyer with Guden Law Firm in Istanbul. “The political tension in Turkey wasn’t good in the last couple of years, and foreign investors started looking at other countries,” he says. “In order to attract more investors in the property market, they launched this scheme.”
In total, foreigners bought more than 18,000 properties in Turkey in 2016, according to TurkStat data, mostly in Istanbul and Antalya. That’s a tiny fraction of the 1.34 million properties sold nationwide, and even a relatively small increase could provide a much-needed influx of capital, and a boost for Turkey’s economically crucial construction industry.
Turkish officials hope the new program, which is drawing interest from Middle Eastern investors, will help offset a recent exodus of high net worth individuals, who left the country in droves during a recent period of political and economic turmoil. According to a report from New World Wealth, Turkey lost 6,000 millionaires in 2016, the fifth-largest net outflow worldwide.
“That’s the interesting bit — on the one side, Turkish people are trying to go out of the country, on the other people from the Middle East are trying to come here,” Guden says.
The application process itself is straightforward, although Guden estimates that applicants will have to wait between six months and a year to receive their citizenship. “From the paperwork, it looks like an easy process,” he says. “The most important thing is to prove that you’re buying the property with your own money — you have to show your financial background, and the details of your bank account and bank transfers.”
Turkish developers are aggressively promoting the citizenship program across the Middle East, Guden says. “They’re promoting it as ‘If you buy a property from us, you’ll get your citizenship included in the price,’” he says. Still, Guden warns, applicants should be somewhat cautious about dealing with developers, and should seek legal advice before finalizing any deals.
Some developers have failed to deliver the properties that they promised, Guden explains, while others have misfiled information in the Turkish land registry, potentially complicating citizenship applications dependent on a particular valuation for the purchased property.
That’s easily prevented by using a lawyer, but some Middle Eastern investors prefer to take care of deals themselves, rather than seeking professional advice, Guden says. “Investors should be careful, and use a lawyer,” he warns.
While only a few applications have been received so far, there’s been plenty of initial interest from investors, says Fatih Barcin of Tuncay Law Office in Alanya. “There’s a lot of interest from Arabic countries, and Gulf countries especially,” he says. “There are a lot of political problems there, so the Turkish passport is important for them.”
Iraqi, Saudi and Kuwaiti investors were the top foreign buyers of Turkish real estate during the first nine months of 2017, followed by Russian, British and Afghan investors.
The program will likely also appeal to professionals and business people, since Turkey is already an attractive country for global businesses, says Burcu Özdemir Bakaçhan, a managing partner at Turkey Relocation Management Services. Still, he says, Turkey “cannot be considered a ‘seeking citizenship’ country,” and is unlikely to emerge as a serious rival to places such as Malta and Cyprus for investors whose top priority is gaining a foreign passport.
That means the program likely won’t have a huge impact on the net flow of HNWIs to and from Turkey, or on the broader Turkish economy, Bakaçhan argues. “Some will always leave, some will always come,” he says.
There are initial signs that the program could be helping to stimulate real-estate purchases. After a sluggish start to the year, real estate purchases by foreigners are now booming: in September foreigners purchased 2,236 properties in Turkey, a more than 75 percent increase on the same month last year.
Still, Bakaçhan is not alone in his skepticism. Some experts have raised concerns that the Turkish government’s $1 billion annual target for the citizenship program is too ambitious, and that officials have set too high a price for citizenship. Europe has numerous cheaper options — a Maltese passport can be had for just 650,000 euros — and unlike most European options, Turkish citizenship doesn’t confer the automatic right to visa-free travel in the Schengen area.
The high cost of the citizenship program is leading many people who initially inquire about seeking citizenship to apply for Turkey’s residency program instead, says Guden. “I get most of my inquiries not from millionaires, but from middle class people,” Guden says.
The residency program, which offers a 2-year renewable residency permit, is easily available to foreign property-owners, or to people who can prove they have the means to support themselves, and has no fixed minimum investment. “It’s a very easy process,” Guden says. “They get residency and they can come and go, and they don’t have to invest $1 million in order to get citizenship.”
That’s led some in the immigration and real estate industries to call for the cost of the citizenship program to be significantly reduced, perhaps by as much as half, in order to make it more competitive.
In September, Environment and Urbanization Minister Mehmet Özhaseki acknowledged that the government was open to rethinking program’s pricing, but insisted that plenty of people were eager to obtain Turkish citizenship through the existing program.
“There’s a lot of interest,” agrees Barcin, the Alanya lawyer. “But if it cost $500,000, they’d be even more interested.”