Real Estate Funds in Turkey
The Principles Regarding Real Estate Investment Funds published in the Official Gazette No. 28871 dated 03.01.2014. Such funds, which are frequently seen abroad, and established mostly for corporate domestic and global investors, are capital market institutions that allow securitization of real estate, bring liquidity to large-scale real estate, and gather investors with property owners.
Real Estate Investment Fund is an investment instrument that brings together individual savings and collectively evaluates these savings in real estate investments by professional managers.
Real Estate Investment Funds can invest in property, and rights basing on property. For that purpose, the fund can generate value increase and trade gain, and/or rental income. The fund earnings can be distributed to investors in two ways. The first gain, named appreciation gain, is realized when the participation shares returned to the founder or transferred to a 3rd party or the time of liquidation. The second gain, named dividend gain, is paid to the shareholders in cash in period(s) suitable to the fund’s investment strategy.
Why Choose Real Estate Funds?
Secured Instrument – Government Guarantee
Portfolio Management Companies or Real Estate Portfolio Management Companies can establish a Real Estate Fund under the audit and supervision of Capital Markets Board in accordance with legal permissions and limitations. That makes Real Investment Funds as a reliable and transparent investment instrument. All Real Estate Investment Fund participation shares owned by the investors are kept by the Custodian Institution licensed by the Capital Markets Board and registered by Central Security Depository where the assets like stocks, treasury bills, government bonds, etc. are also registered.
Property purchase and sale transactions that will be made on behalf of the fund take place under the custodian’s supervision. Since the fund asset is separate from the founder and custodian assets, in case of the founder or custodian’s bankruptcy the fund asset is fully protected. Even if the founder or custodian’s management and audit are transferred to the government, the fund asset cannot be seized, restricted, or be subject to bankruptcy.
Real Estate Investment Funds can only invest in completed and/or issued the occupancy permit immovable properties. Only the projects carried out by the Housing Development Administration (TOKİ), Emlak Konut, Municipalities, and companies with their subsidiaries, affiliates and / or companies that have the privilege to nominate the board of directors are exceptions. And also Real Estate Investment Funds can not participate in property development and / or operating activities.
The compliance of fund activities with the Bylaw and Issuance Certificate is constantly monitored by the Capital Markets Board.
Since all transactions of the fund are subjected to governmental control and inspection, all developments and amendments regarding the fund must be shared with the investors via the web site of Public Disclosure Platform like investment companies, publicly held companies, and other securities. In this way, the investor always has a chance to check the current situation of the fund that he purchased its participation shares.
It is not legally possible for the investor’s assets to be held by the Portfolio Management Companies or in their accounts. The custody duty is carried out by a Custodian Institution (Bank) authorized by the Capital Markets Board. All trading transactions and expenditures made by the Fund are subject to the approval of the Custodian Institution (Bank).
Real Estate Investment Fund’s participation shares owned by the investor are kept by the Custodian institution licensed by the Capital Markets Board and are registered by the Central Securities Depository (CSD) -where the assets the like stocks, treasury bills, government bonds, etc. are also registered. The investor can track every transaction they perform on the fund through the Central Securities Depository’s website and applications.
The Transaction with Real Value
The value of the property which will be included in the fund's portfolio is determined by the property appraisal companies which are licensed by Capital Market Board. The appraised value is confirmed both by the founder and the custodian institution.
Real Estate Investment Funds offer significant tax advantages. First of all, the fund is exempt from the corporate tax. This exemption provides that the funds do not pay tax from the trading and or rental gain.
Additionally, the foreign corporate fund investors are not taxed while the foreign individual fund investors are taxed with a 10% withholding tax.
As can be easily understood from the above explanation, even tax advantages alone are sufficient to reveal the privileges of real estate investment funds. Learn more about Taxation in Turkey.
Since the Real Estate Investment Funds act in accordance with an investment strategy that is well-defined at the time of issuance, the expected returns do not tend to fluctuate. The professional fund and portfolio management teams always control the compliance with the investment strategy. The explained control mechanism ensures to maximize expected return.
Due to its strong capital structure, Real Estate Investment Funds always have a higher bargaining power once you compare to individual investors. The said bargaining power causes that the transactions generally concluded with a lower price than the particular purchases. When the process which starts with a lower purchasing price is combined with the fund’s investment strategy, professional management, and other control mechanisms fund performance results in an extraordinary capital returns.
Legally, Real Estate Investment Funds can pay periodic dividends to its investors. The frequency, amount, and other features of dividend payments are defined in the investor’s presentation of the fund. The investment committee of the fund can change the features of the dividend payments. To maximize the return on investment, the potential investors should select a fund that periodically makes dividend payments.
Liquidity – Exit Strategy
Real estate Investment Funds create a liquid asset from an investment on an immovable. The investor may exit the fund by returning his participation shares to the founder during the exit periods specified in the issuance document. However, it is always possible for an investor to exit from the fund by transferring their share to a third party.
Professional Management & Operational Easiness
Real Estate Investment Funds can be established by Portfolio Management Companies or Real Estate Portfolio Management Companies that have obtained an operating license from the Capital Markets Board. Every fund has an Investment Committee. All decisions -like purchase, sale, lease- are made upon the approval of the Investment Committee who are sector professionals. Via this method the investor delegates such an onerous selection responsibility to the fund managers.
Additionally, all property management activities of the property in the fund portfolio such as maintenance, rent collection, declaration, taxation, legal consultancy, etc. are managed by the fund manager.
Helal Income – Shariah Compliance
Real estate Investment Funds can; buy, sell, rent, lease, and promise to buy or sell any immovable such as field, land, residential unit, office, shopping mall, hotel, logistics center, warehouse, park, hospital, etc. As a rule, a minimum of 80% of fund investments is required to be in property assets. The usage method of this 80% and the rest 20% defines if the fund is shariah-compliant or not. The potential fund investor should select an interest-free shariah-compliant fund to obtain helal income.
The conditions of the exceptional acquisition of Turkish Citizenship have been announced in the Regulation for Implementation of Turkish Citizenship Law No.5901. According to the change made in the Regulation for the Implementation Turkish of Citizenship Law on 19.09.2018 foreigners who purchase 500.000 USD or equivalent foreign currency or equal Turkish Lira Real Estate Investment Fund and keep it for at least three years will be able to acquire Turkish citizenship exceptionally. The "Certificate of Conformity", which indicates that the minimum investment requirement is met, is issued by the Capital Markets Board. Read more about Turkish Citizenship By Fund Investment.