Legal Rights of Foreign Investors in Urban Transformation Projects

Entrance

In Turkey, urban transformation projects have gained momentum, particularly in major cities like Istanbul, Ankara, and Izmir, with the aim of renewing areas at risk of disaster and supporting modern urbanization . This process is carried out within the framework of Law No. 6306 – Law on the Transformation of Areas at Risk of Disaster – and offers significant opportunities for both domestic and foreign investors. Foreign investors can invest in areas such as real estate acquisition, project partnerships, construction contracts, and revenue sharing , but must comply with certain legal limitations and procedures.

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1. Legal Status of Foreign Investors in Türkiye

1.1 Basic Legal Framework

• Law No. 4875 on Direct Foreign Investments: Grants foreign investors equal rights with Turkish investors (independent of the principle of reciprocity).

• Article 35 of the Land Registry Law No. 2644: In the acquisition of immovable property by foreigners, national security and certain restrictions shall be observed.

• Law No. 6306: Defines the procedures and principles for urban transformation projects.

1.2 Conditions for Acquiring Real Estate

Foreign natural persons:

• In Türkiye, you can acquire a maximum of 30 hectares of real estate.

• They cannot acquire real estate in military restricted areas, and the project site must also pass security approval.

Companies with foreign capital:

• Their articles of association must include provisions for the acquisition of real estate.

• Approval from the Council of Ministers or the relevant Ministry may be required.

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2. Methods of Participation in Urban Transformation Projects

2.1 Direct Real Estate Acquisition

Investors can participate in the project by purchasing properties located in risky areas or classified as high-risk structures.

2.2 Joint Venture / Project Partnership

It can develop projects by entering into joint venture agreements with Turkish contracting firms

2.3 Revenue Sharing and Construction in Exchange for Land Share

The company finances the project by signing contracts with landowners and receives a share of the sales revenue.

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3. Rights of Foreign Investors

3.1 Principle of Equal Treatment

According to Law No. 4875, foreign investors have the same rights and obligations as domestic investors.

3.2 Right to Transfer Ownership and Profit

• Earnings, profits, sales proceeds, and compensation resulting from an investment can be freely transferred abroad.

• Foreign currency transfers of the Decision on Protecting the Value of Turkish Currency and of MASAK ( Financial Crimes Investigation Board).

3.3 Arbitration and Dispute Resolution

Foreign investors may choose international arbitration or institutions such as the ICC, LCIA, and ISTAC for their contracts

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4. Potential Legal Problems

• Zoning Plan Amendments: Project approval processes may take longer.

• Expropriation and Easement Rights: Expropriation can be carried out on grounds of public interest.

• Contractual Disputes: These can arise between landowners, contractors, and investors.

• Foreign Investment Permit: Additional permits and approvals may be required for some projects.

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5. Strategic Recommendations for Investors

• Have the contracts reviewed under both Turkish law and international investment law

• Thoroughly check property records, zoning regulations, and risk assessment reports

• Explore Free Zone or Investment Incentive Certificate opportunities to benefit from tax incentives

• Add explicit arbitration clauses to contracts for dispute resolution.

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Conclusion

Urban transformation projects in Turkey offer high-return potential opportunities for foreign investors. However, full compliance with regulations, proper legal advice, and risk analysis are critical to success in the investment process.
Foreign investors need to conduct a comprehensive assessment in terms of both Turkish law and the legal requirements of their own countries.