To curb overvaluation of homes in the setting of citizenship offers for minimum investments, Turkey now assigns appraisers to real estate.

1. Why Is Turkey Changing Real
Estate Appraisal Regulations?
To Ensure Value

2.  In the third quarter of 2021, Turkey experienced record sales to foreign investors.
Foreigners were attracted to the Turkish market for multiple reasons. These
included a sharp fall in the value of the lira, which made homes rather inexpensive,
as well as the promise of citizenship through real estate investment.
 However, this high rate of investment fell sharply by the end of the year, after the
Turkish government created a new rule meant to address inflated real estate prices.
Prior to the new rule, some inexpensive homes were being marked up in value to at
least $250,000, which is the minimum foreign investment to qualify for citizenship.
Many investors were willing to pay a premium on cheaper properties for the
chance to obtain citizenship.

3. The Impetus for the New Appraisal
Regulations in Turkey
 Certain sellers developed relationships with appraisal companies to inflate prices
and create an easier pathway to citizenship for buyers. In some cases, it seems
that the difference in value between market price and the amount paid was
actually returned to the buyer at a later point.
 To curb this behavior, the Turkish government created a new regulation that
automatically assigns appraisers to properties instead of allowing sellers to
choose. This regulation prevents the collaboration between sellers and appraisers
that made the aforementioned deals possible.

4. The Impetus for the New
Appraisal Regulations in Turkey
 In the month after the regulation passed, the prices of some homes marketed to
foreigners dropped by as much as 30 to 45 percent. This has forced many
prospective buyers to walk away. Clearly, the promise of citizenship is a major
draw for many real estate investors. Taking away this privilege has resulted in
some cold feet.
 Unfortunately, many foreigners have become distrustful of the Turkish market as
a result. Presale contracts have been canceled and the demand for sales has
fallen sharply. People who did not understand the price inflation may see the
action as corruption. This discourages investment among people who were not
using property primarily as a route to earn citizenship.

5. The Impact of Tying Citizenship to Real
Estate Investment
 For the past two decades, Turkey has experienced a growing economy largely
because of the construction boom that has occurred under President Tayyip
Erdogan. The citizenship scheme has been particularly important because foreign
investment has helped balance Turkey’s trade imbalance.
 About 7,000 foreigners have received Turkish citizenship in the past three years
because of the scheme. Home sales have been especially significant among
Russians, Iranians, and Iraqis, as well as Afghans. Net foreign investment in real
estate was $5.7 billion in 2020.

6. The Impact of Tying Citizenship to
Real Estate Investment
 In 2021, there was an expectation of selling 50,000 home to foreigners, but the
new regulation will likely curb this number significantly. However, less foreign
investment is not necessarily bad for Turkey. Consider that housing-related
inflation was more than 20 percent during the foreign investment boom, with
rents and mortgages increasing significantly for Turks.
 The immediate impact of the new legislation is expected to be quite significant.
The chairman of one holding company reported that 60 percent of his recent
sales to foreigners were canceled as a result of the new rule. When the new
appraiser comes back with a lower valuation, the contract gets canceled.

7. The Impact of Tying Citizenship to
Real Estate Investment
 Unfortunately, builders and appraisers can use different measures when it comes
to valuations. This results in some discrepancies, but not upwards of $100,000,
which is what was seen in the months leading up to the new rule. The Turkish
government recognized discrepancies in valuations, which led to an investigation
that created this new rule.

8. The Long-Term Impact of the New
Appraisal Regulation
 In the previous schema, someone could mark up a property that cost $150,000 to
$250,000 for the sale and then return that $100,000 to the purchaser after
citizenship was granted. This exact deal was reported anonymously from
someone in the industry.
 People who were making purchases primarily for this reason are the cause of so
many canceled contracts. However, this is only an immediate effect of the new
appraisal policy. When it comes to the long-term implications of this new policy, it
may not end up affecting the Turkish real estate market as drastically as people
initially thought.

9. The Long-Term Impact of the New Appraisal
Regulation
 Moving forward, it would not be surprising for foreign investment in Turkish real
estate to again pick up quite substantially. After all, the lira remains depreciated,
so property in Turkey is still very cheap for many foreign investors. In fact,
purchasing an equivalent property in Turkey would be about a fifth of the price
that it would cost in Dubai.
 Thus, investors who want to get involved with quickly growing markets but do
not have the capital for larger ones like Dubai will likely still turn to Turkey. This
means that the country’s real estate market may make a quick recovery,
especially since it is not clear that these deals for citizenship have been occurring
for very long.

10. The Long-Term Impact of the
New Appraisal Regulation
 Furthermore, investors still have access to citizenship provided that they purchase
a home priced at least $250,000. Some of the canceled contracts may turn into
new sales down the line.