Critical Differences Between Real Estate Sectors in Turkey and the United States

Critical Differences Between Real Estate Sectors in Turkey and the United States

Real estate is an essential sector in Turkey and the United States, but there are significant differences between the two markets. For example, the use of housing loans, taxes, and types of properties purchased and built differ, particularly for developers interested in investing in the real estate sector in these countries. This article will examine the differences between the real estate sectors in Turkey and the United States and examine real estate investment strategies in these two countries.  

Preferred Types of Real Estate Investments in the USA and Turkey 

The types of properties built in the United States and Turkey vary based on social and economic needs. For example, in the United States, there is a focus on commercial, residential, and industrial real estate projects in almost every state, whereas, in Turkey, primarily residential properties suitable for occupancy are constructed.  

Another important aspect is the number of floors and the size of the properties built. In the United States, multi-story and skyscraper-style buildings are constructed, while in Turkey, block-style and low-rise residential properties are primarily built. Additionally, in recent years, residential properties in Turkey have been designed to include both commercial and residential spaces enriched with social amenities. 

In the United States, there is a concept of multi-family dwellings, which refers to several living quarters in one building. These properties are not classified as apartments but generally consist of households with close relationships with one another and can be made of wood or have unique designs. Furthermore, there is a concept in the United States known as condominiums (condos), which is different from the apartments found in Turkey—individuals who live in separate apartments in a building share common spaces and resources and pay association fees. 

What are the Real Estate Taxes Applied in Turkey and the US?

There are various real estate taxes applied to real estate in Turkey and the US. Foreign investors pay miscellaneous taxes when they buy real estate or start earning income from it in both countries. Value-added tax (VAT) in Turkey varies depending on the type and size of the real estate, ranging from 1% 8% and 18%. There is no VAT in the US. However, non-US citizens who do not engage in commercial activities are subject to a 30% FDAP tax on income from real estate. 

1. In addition, the following taxes are applied in the US

  • Federal Property Tax of 40% + State Tax (varies by State)  
  • Sales Tax: Federal + State income tax rate  
  • Income Tax: 30% withholding tax on gross passive income 

2. The real estate taxes imposed on foreign investors in Turkey are as follows

  • Title deed fee 
  • Property Tax 
  • Income Tax 
  • Capital Gain Tax (for income earned after the sale) 

The above taxes are individual taxes. However, corporate taxes are also applied in both countries. 

3. Corporate taxes applied in the US are as follows

For limited companies

  • Property Taxes: Federal Property Tax of 35%, no exemption for properties over $60,000. 
  • Income Tax: 30% withholding tax on gross passive income 
  • Sales Tax: Federal + State tax rates (15% of the sale price is subject to FIRPTA withholding tax) 

For foreign companies

  • Property Taxes: None 
  • Income Tax: Corporate tax rate + 30% branch profit tax (the combined effective rate can be 55% or more) 
  • Sales Tax: They pay FIRPTA tax unless they sell shares in a foreign company instead of tangible assets. 

4. Corporate taxes levied in Turkey are as follows:  

  • Corporate Tax  
  • Tax on income from the sale of real estate  
  •  Inheritance and Transfer Tax  

Differences between US Mortgages and Turkish Home Loans

While mortgage loans in the US and home loans in Turkey may seem similar in some ways, there are several differences in practice. 

How Does the Mortgage Process Work in the US? 

You can use a mortgage loan if you need more cash to purchase a home in the US. However, buying a home with a mortgage loan can be a bit more complicated and time-consuming because individuals need a credit history with US banks to qualify for a mortgage loan. With a credit history, a bank may proceed or even decline your application. 

In the US, mortgage loans are given up to at most 50% of the home's value. If a home purchased with a mortgage loan is sold, the remaining amount owed on the loan is subtracted from the sale price. If the remaining amount is less than $250,000, the seller is exempt from paying taxes on the remaining balance. 

Flipping in the US and Turkey

Flipping, a service that is quite common in the US, is based on selling a property quickly for a profit. By making various renovations and changes, sometimes by improving the surrounding area, the value of a property that has decreased in value can be increased, allowing for a short-term sale. This system, which does not require waiting for residential and commercial property to appreciate in the long term, is quite common in the US. This allows property owners and flipping service providers to make a sale in a short time. 

MARS, which is changing real estate digital marketing in Turkey, will also pioneer the flipping system. We provide a comprehensive flipping service with MARS Architecture expertise by selecting strategically suitable properties for flipping, especially in Istanbul and the Aegean and Mediterranean regions of Turkey. With this relatively new service in Turkey, we are creating sustainable and short-term results in the real estate business.