Turkish Home Sales to Be Taxed on Capital Gains, Simsek Says

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Turkey will tax capital gains from real estate sales as part of plans to turn the nation’s budget deficit into a surplus by 2017, according to Finance Minister Mehmet Simsek.

“Income-tax reform includes for the first time some proper taxation of capital gains from real estate,” Simsek said in an interview in London yesterday. House sales jumped 25 percent in October, data published last month showed, while property prices in Istanbul, the nation’s largest city, have increased more than 20 percent in the past 12 months.

“Right now, if you buy a property in Turkey, if you hold on to it for five years and if you sell it with 10,000 times profit, you don’t pay any tax -- zero tax,” Simsek said. Under the new plan, “even if you hold it for a year, or a thousand years, you’ll still get taxed on capital gains.”

Turkey currently applies capital gains taxes only to so-called “flippers,” people or companies who buy a property and sell it within five years. The rate ranges from 15 percent to 35 percent depending on the amount of the gain. Real estate sales are also subject to other taxes including special consumption and deed taxes. Simsek didn’t specify a rate or a time frame for the proposed levies.

‘Significantly Negative’

“The potential elimination of the REITs’ corporate tax benefits have been speculated about for a while,” Istanbul-based brokerage Yatirim Finansman wrote in an e-mailed report today, using the acronym for real estate investment trusts. “If applied, this would be significantly negative for the REITs, especially for the residential developers.”

An index tracking Turkish real estate companies fell as much as 1.7 percent in Istanbul after the news today, leading declines among sub-indexes on the Borsa Istanbul 100. The country’s biggest developer, Emlak Konut Gayrimenkul Yatirim Ortakligi AS, dropped as much as 2.6 percent.

“They have been talking about a progressive taxation,” Aziz Torun, chairman of Torunlar Gayrimenkul Yatirim Ortakligi AS and head of the Turkish REITs Association, said in an interview in Istanbul. “Everybody is taxed, so why not those who make gains from real estate sales?”

Surplus Target

Turkey’s government is seeking to cut its budget deficit to 0.5 percent of gross domestic product next year and turn a surplus in 2017, according to Simsek. The real estate measure is part of a wider package of income-tax policy changes that will include the “elimination of some exemptions,” Simsek said.

“For example, soccer players in Turkey, they have a flat income tax rate of 15 percent,” he said. “Once the reform is approved, they’re going to be subject to proper, progressive income tax just like everybody else.”

Turkey is also planning steps to reduce corruption in the real estate industry by amending the process for granting permits for land development, Simsek said. He denied speculation about a new tax on individuals’ wealth.

“I want to make it clear, there is no consideration for a wealth tax,” he said.