May 19, 2024
There are fears the new regulations may cause more ghost towns with unfinished buildings
But an exception is made if the buyers are Turks
The Turkish Cypriot administration is working on a set of legal amendments to limit the number of properties that foreigners can purchase in the northern part of Cyprus. The amendments will also put an end to the current loophole that allows property purchases to go unrecorded.
According to the amendments expected to soon be approved by the Turkish Cypriot assembly, foreigners will not be able to purchase more than one property or one piece of land in the north. The purchase will be subject to the permission of the administration.
The amendments include provisions that limit foreign property ownership to seven per cent in any district and three per cent in the north as a whole.
Under current laws, foreigners are legally able to buy up to three properties subject to permission, but this limitation has long been bypassed through the establishment of trusts that allow lawyers to purchase properties on behalf of foreigners. Such purchases have created a large gap between actual transactions and official records, as well as obscuring property ownership.
Sector experts estimate that over 50 per cent of property transactions in the north are not recorded. Dursun Oguz, who is responsible for the interior affairs dossier in the north, recently acknowledged that there are foreigners who have purchased up to 30 properties in the north and never recorded them under their own name.
According to the amendments, any foreigner, who has purchased more than one property before the amendments but have not registered these with the land registry department, will have to get rid of these properties within 24 months.
The amendments include provisions that outlaw multiple property purchases done through lawyers and stipulate that purchase agreements will be null and void unless the transfer of property is finalised at the land registry department within six months.
Turkey FATF
The amendments to the property regime are understood to be part of Turkey’s efforts to combat money laundering as it strives to get out of the international crime watchdog Financial Action Task Force FATF’s grey list.
FATF grey-listed Turkey in 2021 for failing to supervise its sectors such as real estate and banking that are vulnerable to money laundering and to financing terrorist groups. Turkey needs to get out of the grey list to improve confidence among foreign investors as it grapples with a deep economic crisis. According to official data Turkey’s annual inflation was almost 70 per cent in April.
Turkey’s “AKP government targets to get Turkey out of the grey list in June,” wrote Turkish journalist Zeynep Gurcanli in the financial news website ekonomim.com recently. “Until today, the grey list issue has always been discussed only in relation to Turkey… It appears that Ankara has realised that it will not be able to get out of the grey list unless north Cyprus stops being mentioned in connection with black money.”
Gurcanli added that Ankara wants the amendments to be approved by the Turkish Cypriot assembly by the end of this month.
Money laundering
The recent spike in property sales to foreigners in the northern part of Cyprus coupled with legal loopholes and lack of adequate controls had led to increased concerns about money laundering and calls for measures to regulate the sector.
Multiple reports in international media had pointed to north Cyprus as a destination for foreigners – especially Russians – to park their money without any questions asked. Russians can easily buy property in the northern part of Cyprus as banks there are not part of the international Swift system and operate via Ankara, which has not put sanctions on Russia.
In a speech last year, Turkish Cypriot judge Fadil Aksun, who is the head of the north’s Nicosia High Criminal Court, had made a stark warning about the large amounts of money coming into the north for real estate purchases.
“But there is no control over whether a real estate purchase indeed takes place,” said Aksun. “There is a risky money circulation in our country.”
Criticisms
The amendments have drawn criticism however, as they create a differentiation between foreigners and Turkish citizens and provide exceptions for the latter. While foreigners are limited with one property only, “natural persons who are citizens of a state that recognises the Turkish Republic of Northern Cyprus” have the right to buy up to three properties, according to the amendments.
“The plan is clear: Annexation didn’t happen so let’s sell for money,” was the headline of daily Ozgur Gazete, which argued that the amendments are aimed at enabling Turkish citizens to buy more properties in the north.
In fact, Hakan Akcam, the head of the Chamber of Real Estate Agents in Turkey, in a statement he made after the amendments were made public said: “The law in TRNC is changing. The way is being cleared for Turkish investors.”
Economic concerns
While the amendments are deemed positive for preventing money laundering, they have caused controversy because of the impact they are expected to have on the economy.
The Association of Real Estate Agents in the north held a press conference against the amendments saying they will “destroy the sector, cause chaos and serious economic loss”.
“The foreigners will leave,” asserted the association’s lawyer Husnu Tokatlioglu. “The state will not get revenue because there will be no sales. Real estate agents will have no customers. Contractors will not be able to sell what they have built.”
Economist Mertkan Hamit states that the amendments will not only impact the real estate sector but the whole economy.
“Being outside international supervisory mechanisms, north Cyprus has become a destination for black money,” says Hamit. “If these amendments are implemented effectively, north Cyprus will no longer be an option for those, who would like to keep their assets outside supervision… The problem is we don’t know what the exact effects will be… In the pessimistic scenario, we may have more ghost towns with unfinished buildings and derelict apartments.”
