Turkey launched an investment for citizenship programme. Why?

The plan is to boost investment as Turkey joins a host of countries that are selling their nationality to rich foreigners.

Photo by: TRT World
Photo by: TRT World

Turkey is not the first country to have offered its nationality for investment.

What is Turkey's Investor Immigration Programme?

The programme allows high-net-worth individuals from other countries to invest between $1 million and $3 million in real estate, shares of Turkish companies or government debt bonds.

In return, they would be legible for Turkish nationality if they retain the investment for three years.

Ankara revised its Regulation on the Implementation of Turkish Citizenship law on January 12. 

But there are only a few details available about the programme.

When investors will get citizenship cards and passports remains unclear.

Turkey already offers residency to foreigners who buy property in the country but the permit is valid only for six months before it needs to be renewed.

Is Turkey doing this to increase its foreign exchange reserves? 

Turkey's currency, the lira, has lost more than 17 percent of its value against the US Dollar in 2016.

Attempts to stem the fall of the lira, including an official appeal to convert dollar holdings into local currency, have not helped so far.

"This program is not the right remedy to solve the economic problems," vice president of Istanbul Kemerburgaz University, Dr Emre Alkin told TRT World.

"But I don't think it’s a bad idea either to raise foreign exchange through the immigration investment program."

The lira's depreciation is linked to the high foreign currency debt of the private sector. Most of those loans were borrowed by small-scale companies which employ up to 10 people, Alkin said.

"These are small family-owned businesses such as restaurants. They owe billions of dollars to international banks and they are feeling a lot of heat," he said.

A drop in tourism, a big source of foreign exchange, has further dented the economy.

Tourism in Turkey has taken a hit in recent months following a series of terrorist attacks. (Getty Images)

Has selling citizenship worked for other countries?

The use of economic citizenships, the legal term for this process of naturalisation, to boost state revenue, has been used by other countries before.

The Caribbean nation of St. Kitts and Nevis was almost bankrupt in 2006 when it invited investors to buy its nationality. In three years it was able to slash its debt from 164 percent of the GDP to 104 percent. 

By 2014, passports became its biggest export, accounting for 25 percent of the GDP – that's the value of all the goods and services produced in a year.

How much investment is expected to come to Turkey?

It's too early to tell. Turkey's economy is much bigger and more advanced than many countries that have adopted an immigration investment programme.

The ailing real estate sector, that saw a 19 percent drop in sales to foreigners, could gain from the initiative. 

"Within the first few years the amount of foreign exchange Turkey earns will be between $5 billion to $10 billion," Istanbul Builders Association's chairman, Nazmi Durbakayim told TRT World.

He projected that the investment could rise to $20 billion.

Click on the image to enlarge

Should investors be concerned?

Turkey hasn’t mentioned anything about guaranteeing the exchange rate at which the investment will be made.

That means if the lira appreciates three years down the road then the $1 million invested today would be worth less in Turkish liras later.

Since the value of real estate always tends to rise, investors normally profit.

However, real estate developers see some hurdles in the scheme.

Ahmet Kayhan, CEO of Zingat, a real estate information platform, told TRT World that $1 million seemed too high, as an investor can pay less to become a Portuguese citizen and be entitled to European Union benefits. 

"There are also operational issues when it comes to real estate investment. The process for buyers to transfer title deeds in their names is hefty and takes six months, we don’t know about other things such as the inheritance rules."

With so many countries selling citizenship, is Turkey too late?

Some in the immigration industry are sceptical.

"If you are a rich businessman from Asia, you'd like to have a passport of an EU country," said a Karachi-based immigration consultant Sikander Lalani, who has assisted dozens of wealthy Pakistanis in buying nationalities of other countries.

Cyprus that has already been offering its nationality to rich foreigners poses a serious challenge to Turkey. Source: Getty Images

Besides the initial price tag, investors who want to escape the uncertainty of their own country, look at other factors when deciding whether to buy another nationality.

"Some want ease of movement and don’t want to wait weeks and months for the passport. Others are interested in better education of their children. And some do it for tax reasons," Lalani said.

Cyprus, a stone-throw away, is Turkey's biggest competitor in the sale of nationalities, even though it costs more. 

The island-state offers grants nationality immediately and as a member of the EU has become a more luring destination for the investors.

Who is likely to buy a Turkish passport? 

"Muslim migrants would be potentially interested in moving to a Muslim country," the Investment Migration Council's chairman Dimitry Kochenov said. 

"The unfair treatment Muslims face in the United States and the European Union will play its part in influencing the decision of the migrants."

Investors who live and work in the United Arab Emirates, where nationality is not offered to non-Arabs, will also be interested in Turkey, he said.

Kochenov said price is not a factor for investors who want to come to Turkey.  

"As long as they are getting back their initial investment after a few years, it's okay for them." 

Authors: Saad Hasan and Asena Bosnak