A New Era for Real Estate Investment Funds

The Communiqué Amending the Communiqué on Real Estate Investment Funds (III-52.3) (“Communiqué”), published in the Official Gazette on 17 July 2024, Issue No. 32604, aims to boost contributions to real estate investments, a sector with significant transaction volume in the Turkish economy. Under the Communiqué, application procedures for Real Estate Investment Funds (“REIFs”) have been streamlined, enabling the issuance of participation shares linked to an umbrella fund. Additionally, “project” REIFs are now permitted to invest in projects where more than half of the total gross area of independent units is designated for residential use, as verified by independent real estate appraisal firms. 

Before the amendment, REIFs were restricted to investing only in projects executed by specific administrative bodies. The amendment has lifted this restriction, marking a significant step forward in financing real estate projects. Furthermore, project REIFs can now invest in projects that have not yet obtained occupancy permits, broadening the scope of potential investments and creating new opportunities for real estate development. 

Some in the real estate sector have interpreted this amendment as allowing REIFs to act as project “contractors”. However, a closer analysis of the Communiqué reveals that this interpretation is not supported by its provisions. 

According to Article 18(1)(a) of the Communiqué, which governs the structure and operations of project REIFs, these funds, with limited legal personality, are permitted to acquire, sell, lease, or rent land, plots, residential properties, offices, and similar types of real estate to generate capital gains or rental income. The Communiqué now allows project REIFs to include in their portfolios not only their own plots but also projects on third-party plots, whether developed under revenue-sharing or construction agreements in return for flat, or on public lands. Project REIFs can invest in these projects by establishing right of construction or by purchasing residential units from ongoing developments. 

As described, the role of REIFs in real estate projects primarily revolves around land acquisition and financing. However, no authority has been granted for REIFs to act as project contractors. Due to their limited legal status, REIFs are not permitted to engage in activities beyond those explicitly outlined in the legislation.  

Moreover, specific provisions in the Communiqué strongly indicate that REIFs cannot assume the role of project contractors. Article 18/A(1)(e) of the Communiqué mandates that any real estate projects included in a project REIF’s portfolio must have obtained all necessary permits, completed and approved designs, and possess all documents legally required to commence construction. This provision makes it clear that projects must have secured all permits and have finalized, approved designs before project REIFs can invest. Additionally, Article 18/A(1)(f) stipulates that all construction related activities—such as preparatory work, manufacturing, drilling, installation, and other tasks—must be performed by contractors specified under Article 22 of the Communiqué. These tasks are to be executed within the framework of agreements that define the mutual rights and obligations concerning construction works. While portfolio management companies may act indirectly as project facilitators by coordinating between landowners and contractors, this should not be misinterpreted as project REIFs assuming the role of project contractors on a contractual basis. 

In conclusion, the Communiqué aimed at enhancing real estate investment activities, and project REIFs are expected to contribute to increasing supply and become an attractive investment instrument for investors seeking potentially high returns in the real estate market.