A New Era for Real Estate Investment Funds

Recent Developments

With the Communiqué Amending the Communique on Real Estate Investment Funds (III-52.3) (“Communiqué“) published in the Official Gazette dated July 17, 2024 and numbered 32604 (“Amendment Communiqué“), it is now possible to establish project real estate investment funds aimed at funding residential projects and the ban on establishing real estate investment funds as umbrella funds was removed.

What Does the Decision Say?

Pursuant to the Amendment Communiqué: It is now possible to establish project real estate investment funds to invest exclusively in real estate projects, as long as it is determined by a report from the independent real estate appraisal institutions that more than half of the total gross area of independent units are reserved for residential use.

These “project real estate funds” must fulfill the following conditions:

— They must contain “project real estate fund” in their title.

— The fund portfolio can only consist of land on which projects will be developed, real estate projects, and money and capital market instruments referred to in the Communiqué. However, properties that have not been completed as of the date of investment may continue to be included in the fund’s portfolio in the periods following their completion.

— The funds’ cash can only be invested in investment funds with short-term or money market in their titles, reverse repo, lease certificates issued by the Hazine Müsteşarlığı Varlık Kiralama Anonim Şirketi, public debt instruments, time deposits, and participation accounts.

— All kinds of building works for real estate projects and all kinds of construction works, such as preparation, manufacturing, drilling, installation, modification, improvement, renewal, development, and similar construction works, shall be carried out by the contractors that fulfill the prerequisites set out in Communiqué within the scope of a contract containing the mutual rights and obligations of the parties arising from the construction works.

— The real estate projects to be included in the portfolio must have all the necessary permits in accordance with the relevant legislation, and the project must be ready and approved; all documents required by law for the commencement of construction must be fully and accurately available, and the project must be collateralized either by a building completion insurance, a bank letter of guarantee, through a progress payment system or by one of the other methods deemed appropriate by the Capital Markets Board of Türkiye. However, in cases where the counterparty is a state owned bank, the Savings Deposit Insurance Fund, the Housing Development Administration of the Republic of Türkiye or any of their subsidiaries and/or affiliates where these have a privilege to nominate candidates to the board of directors, then these collateralization requirements are not applied.

— All legal requirements must be satisfied in order to start the construction of the real estate project, within three years at the latest, on the fund’s own land.

In addition to the lands under a project real estate fund’s ownership, the fund may include in its portfolio the real estate projects realized on the lands owned by other persons or on public lands with which it has entered into revenue sharing or flat for land sale agreements, and may invest in real estate projects by establishing a right of superstructure or by purchasing independent residential units from ongoing projects.

The ban on establishing real estate investment funds as umbrella funds was rescinded. Accordingly, all assets and liabilities of each sub-funds under the umbrella fund must be segregated from each other. The first sub-fund issuance application under an umbrella fund must be made within six months following the registration of the umbrella fund bylaws.

Existing funds must comply with the fund issuance contract signatory requirement and must revise their issuance certificate to comply with the Communiqué by December 31, 2024. Funds that fulfill the conditions set out in the Communiqué, including having to sign issuance contracts with all of their fund participation share owners, can apply to be converted into real estate project funds until August 17, 2024 at the latest.

Conclusion

The Amendment Communiqué is expected boost real estate investments by allowing real estate investment funds to invest into residential real estate projects.