What Investors Need To Know About The KDV Tax On Turkish Property

KDV tax One of the things I love most about property in Turkey are the low prices which means great capital growth potential. So when one of my real estate experts out in Istanbul called me up this week to tell me that prices could be rising by more than 18% this year, I was delighted.

This is great news, I thought, wait until I tell our investors all about it.

Unfortunately, I didn’t hear the rest of the news…

“The bad news is” he said, “This increase in prices will be due to a change in the country’s tax law.” He told me that the rate and the way VAT (KDV in Turkish) will be applied to property purchases in Turkey has changed this year.

This latest change means that KDV tax, which once amounted to just 1% on property with a closed living area of less than 150 square metres and 18% for those properties over 150sqm, will now be 18% for most properties – even those less than 150 square metres.

Will this make a big difference to overseas property investors?

Not if you are thinking of investing in a property above 150 square metres or if your property is already built.

What may happen is, tax rises could have an impact on property values as they may push up the price of smaller apartments and, in turn, place upward pressure on apartments that are a larger size.

This makes buying off-plan apartments in Turkey a little more tricky as it will depend on three things: are developers prepared to absorb the cost? The value of the land the property is built on and when they built it.

If you are looking at investing in a key-ready apartment in Istanbul, then you may well escape the increase in KDV. The new law only applies to building plans submitted in 2013.

If the land is assessed as being low in value, then the KDV rate will be 8% so it is best to check before making a purchase.

Interestingly the new KDV tax law will only apply to new build properties sold by developers and not to those properties exchanged privately or those that can be considered used.

My Turkey real estate expert informs me that investors should not be too worried by this development as the tax will be a direct cost to developers, though we can expect them to pass this on.

Large developers may well delay passing on this cost to gain an advantage over smaller competitors. Even so, 75% of all properties purchased by overseas property investors in Turkey is under 150 square metres.

So if you’re an investor looking at Turkish property right now, I would strongly advise choosing a large reputable developer, or a property agent you can trust to ensure that you get the best deal in 2013.

Are you concerned about this change in the tax law in Turkey? Please leave you thoughts and comments below:

Kind regards

Loxley McKenzie
Managing Director

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