Real Estate Funds in Turkey
The Official Gazette published an article dated 03.01.2014 No. 28871 in regards to the real estate investment funds. The article discusses how funds are generally established abroad and for corporate and global investors, they are considered capital market resources that allow securitization of property. They also facilitate the influx of cash and also let investors meet with the property owners.
Real Estate Fund is an investment mechanism that collects individual savings and collectively assess the savings by professional managers.
For the purpose of Real Estate Investment Funds being invested in property, and rights basing on the property, the fund can generate value increase and trade gain, and/or rental income. The fund incomings can be given out to investors in two ways. The first, named appreciation gain, happens when the contribution shares are given back to the founder or passed to a third party at the time of liquidation. The second gain, named dividend gain, is paid to the shareholders in cash in times appropriate to the fund’s strategy plan.
Key Reasons to Invest in Real Estate Funds
Secured Mechanism - Government Guarantee
Portfolio and Real Estate Management Companies can begin a Real Estate Fund with the surveillance and inspection of Capital Markets Board according to legal permissions and restrictions. This makes Real Estate Investments Funds a dependable and transparent investment tool. All participation shares by Real Estate Investment Fund owned by the investors are kept by the Custodian Institution licensed by the Capital Markets Board and registered by Central Security Depository where assets like stocks, treasury bills, government bonds, etc. are also registered.
The custodian supervises the property purchase and sale transactions that are made on behalf of the fund. The fund asset is fully protected in case of the founder’s or custodian’s bankruptcy since the asset is separate from the founder and custodian assets. Even in the case of the founder or custodian’s management and audit are transferred to the government, the fund assets cannot be subjected to bankruptcy, seized, or restricted.
Secured Bonus Investment
Real Estate Investment Funds are not able to participate in property operating activities or development. The only exception to this project that is done by Emlak Konut, Housing Development Administration (TOKI), Municipalities, companies with their subsidiaries, affiliates, and/or companies that have the privilege to nominate the board of directors. Moreover, Real Estate Investment Funds are invested in finalized and/or properties with an occupancy permit.
The Capital Markets Board complies and constantly monitors the fund activities with the Bylaw and Issuance Certificate.
It is obligatory that all developments and changes regarding the fund are shared with the investors via the website of Public Disclosure Platform like an investment and publicly held companies, or other securities since all transactions of the fund are subjected to governmental control and supervision. This way the investor has the ability to check the status of the fund that he purchased its participation shares.
The investor’s funds cannot be held by the Portfolio Management Companies or in their accounts as it is legally not allowed. The custodial duty is carried out by a Custodian Institution (Bank) authorized by the Capital Markets Board. All trading transactions and expenses that are made by the Fund must be approved by the Custodian Institution (Bank).
Participation shares of Real Estate Investment Funds are owned by the investor are held by the Custodian institution licensed by the Capital Markets Board and registered by the Custodian Institution (Bank) The CSD registers other assets like stocks, treasury bills, government bonds, etc. All transactions can be monitored by investors when performed through Central Securities Depository’s website and applications.
Capital Market Board licenses the property appraisal companies that indicate the value of the property that is included in the fund’s portfolio.
The appraised value is confirmed by both the founder and the custodian organization.
There are many benefits to tax that Real Estate investment funds offer. Firstly, the fund is exempted from the corporate tax. The exemption ensures that the funds don’t pay tax from the trading/rental gain.
In addition, foreign corporate fund investors aren’t taxed, however foreign individual fund investors are taxed with only 10% withholding tax.
As detailed above, these advantageous opportunities alone are enough to provide the benefits of real estate investment funds.
Real Estate investment funds have complied with an investment plan that is well defined at the issue date, the expected returns are most likely not to fluctuate. The investment plan is always controlled and complied with by the professional fund portfolio management team. Maximized expected return is ensured by the controlled mechanism.
Real estate investment funds always have a higher bargaining power compared to individual investors.
It is concluded that this bargaining power makes the transactions less priced than individual purchases. A significant capital return obtained on the fund performance is gained as a result of the lower purchasing price in combination with the fund’s investment plan, professional management, and other control mechanisms.
Legally, periodic dividends can be paid to investors by real estate investment funds. The investor’s presentation of the fund explains the frequency amount and other features of dividend payments. The features of the dividend payments can be modified by the investment committee of the fund. The potential investors should select a fund that periodically makes dividend payments, to maximize the return on investment.
Liquidity and Exit Strategy
A liquid asset is made by the Real Estate Investment Funds from an investment on an immovable. The investor can exit the fund by giving back his participation shares to the founder during a specific exit period that is stipulated in the issuance document. It is always possible for an investor to exit from the fund by transferring their share to a third party.
Professional Management & Operation Simplicity
Portfolio Management Companies or Real Estate Portfolio Management Companies establish Real Estate Investment Funds by obtaining a registered license from the Capital Markets Board. Every fund has an Investment Committee who are sector professionals who approve all decisions -like purchase, sale, lease, etc. The investor delegates such a difficult selection responsibility to the fund managers through this method.
In addition, the fund manager manages all property management activities of the real estate in the fund portfolio such as maintenance, rent collection, declaration, taxation, legal consultancy, etc.
Helal Income - Shariah Compliance
If the fund investor would like to select the interest-free shariah-compliant funds to achieve a Helal income. Real estate investment funds can; buy, sell, rent, or lease any immovable property such as field, land, residential unit, office, shopping mall, hotel, logistics center, warehouse, park, hospital, etc. The property assets should have a minimum of 80% of fund investments. The use of this 80% and the rest of the 20% determines if the fund is shariah-compliant or not.
The conditions of acquiring Turkish Citizenship have been announced in the Regulation for Implementation of Turkish Citizenship Law No.5901. According to the recent change made in the Regulation for the Implementation Turkish of Citizenship Law in 2018 foreigners who purchase 500.000 USD or equivalent foreign currency/Turkish Lira in a real estate investment fund and have it for a minimum of 3 years will be eligible for Turkish Citizenship. The Capital Markets Board issues the 'Certificate of Conformity', which confirms that the minimum investment requirement is met. Read more about Citizenship in Turkey By Fund Investment.
FAQ About Real Estate Investment Funds in Turkey
Q: What are real estate funds?
A: Real estate investment funds are funds that are established according to the principles of fiduciary ownership and provide income to their partners by investing in real estate and real estate-based projects.
Q: What are the advantages of real estate funds?
A: The investor who buys a real estate investment fund participates in both the rental income and the increase in the value of the real estate. Real estate investment funds provide investors with stable income and value increase in a transparent environment. The process is monitored by SPK (Sermaye Piyasası Kurulu).
Q: Who can invest in real estate funds?
A: Only qualified investors can invest in the funds. It is sufficient to have an asset of one million Turkish Lira to become a qualified investor.
Q: Can foreigners invest in real estate funds in Turkey?
A: Yes. If a foreigner is counted as a qualified investor, it is possible to invest in real estate funds.
Q: Can I get Turkish citizenship by investing in real estate funds?
A: Yes. Foreigners who invest 500.000 USD in real estate funds can get Turkish citizenship. This is one of the fastest ways of obtaining Turkish citizenship.
Q: What about the taxes for real estate fund investment?
A: Dividends and incomes earned by individual investors investing in funds are exempt from income tax. The earnings obtained by investing in real estate funds are limited to only a 10% stoppage tax and are not declared.
Q: Is my money safe at real estate funds?
A: Real estate investment fund participation shares are kept by the SPK-approved portfolio custodian and registered with the Central Registry Agency (Merkezi Kayıt Kuruluşu). Valuation of real estate investments is made by valuation institutions approved by SPK. Funds are additionally subject to independent auditing.
Q: What kind of properties can real estate funds invest in?
A: As stated in the issuance documents, the funds can invest in land, housing, office, shopping center, hotel, logistics center, warehouse, park, hospital, and similar real estate investments.
Q: How can I exit from the funds?
A: In temporary funds, the exit is made automatically at the end of the term. In permanent funds, the fund participation shares can be returned to the fund at the stages, and conditions specified in the issue document and exit can be made. In temporary funds, if specified in the issue document, exit can be made during the Fund period.