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On October 25, 2023, Turkey adopted a new Law No. 7464 "On Real Estate Rental for Touristic Purposes." The full text has been published in the official gazette (in Turkish).
The law regulates the procedures and principles of short-term rentals - less than 100 days. Long-term contracts (100+1 days) are not subject to this law.
The new rules will apply to transactions concluded from January 1, 2024.
There is no legal precedent yet, so many details remain unclear. However, the main conditions have been clarified. For instance:
There are more questions than answers on this topic now. It's unclear how to obtain category A for real estate agencies, which will allow them to rent out clients' properties on a daily basis. It's also unclear how to register tenants who don't pay for their stay: many owners regularly have relatives and friends visiting… The issue of refugees is currently relevant – what should a person who provides a property for living free of charge do? Another question is about how to pay taxes correctly and what deductions are available. It's also unclear how to work with registering clients with the police – we don't even have access to the system yet, and it's unclear when it will open.
For now, we have come to a conclusion: everything that we wanted to rent out on a daily basis is closed until the procedural nuances are clarified. We are renting out properties for three months or longer, for the winter period. We are consulting with lawyers, accountants, and waiting for clarifications from the officials. This strategy seems to be the safest for now. Yes, previously an apartment could earn €1.5 thousand a month, now it's €500. But at least it covers its maintenance, and the owner and agency don't risk facing huge fines.
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It's currently unclear what specific requirements are imposed on the complexes in order to obtain a license for short-term rental. At the moment, it's only clear that a sign from the Ministry of Tourism should be displayed in the residential complex. Understanding how to obtain licenses will only be possible through practical experience.
It is easiy to comply with the new law for new construction projects. They can obtain a license or include the relevant right in their corporate charter before issuing the first TAPU (property ownership certificates). It's certain that new projects will use this opportunity as a marketing tool.
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It is more complicated for already functioning complexes, even in those, where at least one resident has been issued a TAPU.
It is clear that most of such complexes do not have any licenses, and it's likely that nothing is specified in the charter: there wasn't a need before. But now, in order for short-term rentals to be allowed in such buildings, the confirmation of all residents is required – contrary to rumors, no relaxations have been made in any region.
And this is a blow to investors. Around 30-40% of foreign owners earned or wanted to earn on rentals. This is thousands of people. What should they do now?
One option is to rent unofficially – the risks are clear, but I think, some of them will accept the chalenge. Another possibility is to sell their property. This will undoubtedly lead to a decrease in prices on the secondary market, especially in tourist areas. On the other hand, those who bought the properties one and a half , two, or even three years ago, even when providing a discount of 25-30% from current prices, will not be at a loss: the value of real estate has increased much more during this time.
Another course of action is shifting towards the long-term rental market. While profitability may decrease, there will be fewer operational expenses and no need for licenses. Moreover, currently many immigrants in Turkey need rental housing.
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There are two choices for those who have already purchased real estate now: either sell or rent out apartments for long-term periods – for 100 days or more. For instance, if a guest wants to stay for three months, a contract may be concluded for 101 days.
There’s not much to be earned from long-term rentals, and the rights of tenants are well protected by local legislation, making it difficult to evict the tenants. It might be easier for owners to sell their property on the secondary market and buy another one in a new development for short-term rental. I think the current events may lead to a decrease in prices of the secondary housing.
Some property owners will be able to adapt relatively painlessly to the new requirements, but only if their complexes have already been professionally involved in short-term rentals. Such properties were in the market, though they were a minority.
Our company has long been engaged in daily rentals, but we have always operated under a license with complexes that had the provision for short-term property rental. Therefore, nothing will change for our investors. We will simply reissue the permits – previously, local municipalities issued them, but now the Ministry of Tourism will handle this procedure.
It's important to understand that the license is issued not to the property, but to the owner or legal entity that has the right to be engaged in this activity. This means that if there is an agency in a residential complex that rents out 30 apartments, this does not automatically give the right to an individual to do the same: they must obtain a separate permit.
For owners who ran this business independently, I see three options. The first one: to go completely underground at their own risk and hope that inspectors won't catch them. The second one: to switch to the long-term rental sector (100 days or more). The third one : if your complex has a management company with a license for short-term rentals, you may negotiate the issue with them and ask to manage your apartment as well.
The first reaction will be observed in the long-term rental sector. The number of properties available for long-term rental is likely to increase, as owners who previously rented apartments to tourists may switch to this model. This fact provides that the prices are likely to cool down.
However, there will be fewer properties available for short-term rental. Hoteliers, as well as private owners who can obtain licenses, are most likely to benefit from this situation.
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Primarily, this law will hit the market of illegal rentals. Technically, it was necessary to obtain a license and provide information about guests to the police passport system even before, but many owners did not do this and rented out apartments illegally.
Now, it will be more difficult for them: substantial fines are provided for offenders, neighbors know that renting apartments to tourists without a license is not allowed, and the law has made a lot of noise. Some owners will remain unauthorised, but overall, the market will become more organized.
Another law that regulates the real estate advertising sphere was also recently adopted. In order to publish an advertisement for sale of property, the owners will be required to disclose their personal data, and a legal entities must provide the names and phone numbers. The system for electronic verification of advertisements (EİDS) has already been created under the Ministry of Commerce. This requirement could be extended not only to sales but also to real estate rentals in the near future.
After the law's implementation, there will be much more government control, as it's very easy to track 'illegals' on Airbnb, Booking, and other similar platforms. Not to mention complaints from neighbors or the management company - there will always be people who are dissatisfied...
The supply of properties for short-term rentals will decrease, as only those who can obtain licenses will remain on the market. Consequently, the prices will go up – I think by about 20-30%.
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My short-term forecast is that the majority of properties that were rented out on a daily basis will leave the market. Hotels will immediately raise their prices – this is a certainty. Currently, all the "five-star" hotels are closing for the winter period, so there will be less competition, and the remaining apart-hotels will undoubtedly want to take advantage of the situation.
Оn the other hand, long-term rentals will continue to become cheaper. Prices have already dropped by about 25-30%. But there is an important nuance: all owners are now signing contracts only until May 2024 – they are hoping that the procedures for operating in the tourist market will be clear by then, and it will be possible to return for the high season.
The effect may also spread to the sales sector. Secondary market properties that cannot obtain a license will decrease in value; and new complexes will start to mention this option in their copporate charters in advance and use it as a competitive advantage.
A similar situation is observed in Barcelona. A moratorium on issuing new tourist licenses has been in place for a long time there, and properties that have the licenses are priced 20-30% higher than their equivalents.
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The value of properties on the secondary market will most likely decrease. However, developers that have rainy day funds will not lower their prices. But the sellers will still have a good profit. They will be selling their properties not for €100,000 but for €70,000, though they had bought them for €40,000.
Investment deals for short-term rentals will remain in the market. All new complexes will be suitable for this type of business. Previously, the percentage of requests for purchasing with the intention of tourist rental was about 30-40%.
Regarding the regulation of tourist rentals, Turkey did not need to create a completely new approach. Similar laws have been adopted in many countries, both in the West and the East.
As you can see, this is as part of a global trend: the short-term rental sector has become very large, and more and more states are seeking to regulate it.
The main purpose of the law is to bring order to the industry and collect more taxes. During the discussion of the law, Turkish officials estimated that about 80,000 properties in the country are rented out on a short-term basis without registration. Shady owners are presumably earning around 51 billion Lira (€1.7 billion) per year and not paying taxes on this income.
There is also a clear intention to support the hotel business, which regularly complains about "unfair competition with private owners."
Another effect the authorities are evidently counting on is the reduction of long-term rental prices due to an increase in supply. Many investors who are currently earning from tourists will have to switch to the long-term segment.
Photo: Levi Meir Clancy / Unsplash
