Real Estate Investment Fund
It is an inevitable fact that developing economies create investment tools. Thus, as it was published on Communiqué No. III-52.3 regarding Real Estate Investment Funds (referred as Communiqué hereafter), a new investment tool became operative in securities market. Once the Communiqué on Real Estate Funds was published on Official Gazette dated 03.02.2014 No.28871, such investment tool has taken effect by the time of enforcement for the Communiqué, 01.07.2014. Real estate funds, which have had legal grounds for the first time, are tools which may provide fictive negotiability to real estate as well as liquidity. Such investment tool may combine domestic/international investors and real estate owners under government support scheme. By application of such method, individual investor may benefit from various tax incentives and risks for commercial investors shall be minimized.
In 52nd Article of Capital Markets Law, such investment tool was described as that “Amount of assets having non-legal entity characteristic established in accordance with Communiqué issued by portfolio management companies within the context of articles of this Code, by financial contributions or assets collected from trust fund owners where such investment tool shall be formed on behalf of trust fund holders by assets and claims identified by the Board in accordance with rightful asset possession manner”. On the 5thsub-clause of the same Article, it was stated that legal entity characteristic of such asset is limited with title deed transactions where real estate fund has no legal entity characteristic rather than aforementioned fact.
Being subject to Capital Markets Law Article No.52, investment funds are assets having non-legal entity characteristic established in accordance with Communiqué issued by portfolio management companies within the context of articles of this Code, by financial contributions or assets collected from trust fund owners where such investment tool shall be formed on behalf of trust fund holders by assets and claims identified by the Board in accordance with rightful asset possession manner. This definition emphasizes that legal entity characteristic is limited with title deed transactions such as registering to Title Deed Registry Office or amendments in title registry records. Real estates and rights and bonds related with real estates included in investment portfolio are to be registered in the name of the fund. In order to obtain a permission to set up investment fund, their articles of Communiqué are to be validated Capital Markets Board. Investment funds are set up by a Communiqué for limited/non-limited period of time.
In accordance with 54th Article of Capital Markets Law, Capital Markets Board was authorised to identify principles regarding obligations for public disclosure, description of fund characteristic, charges for fund management and holding funds as well as issuing contribution charges and transforming funds. As it was stated on the 4th Article of Communiqué which was released within this context, investment funds were described as “Assets, having no legal entity characteristic, which were to be established for limited/non-limited period of time by real estate portfolio companies and portfolio management institutions authorised by Board to transact on assets and financial operations on behalf of shareholders within the context of third article over decent possession holder principle by financial contributions received by investors”. Using this definition, it is possible to define real estate funds as type of funds in which properties are purchased and contribution shares over such portfolio of real estates are sold to saving account holders in which a benefit over real estate such as rent or increase in asset value is provided as benefit to such holders. Real estate investment fund shall contribute in development in capital market by providing a higher level of competition and as such instrument is sold in second-hand market, capital market shall become more active. Another distinctive factor mentioned in definition is that real estate investment trust shall be established only by portfolio management companies and real estate portfolio management companies.
In case it is announced on informative bulletins, real estate investment funds may be established to invest on a real estate or without any limitation. As it was indicated in definition, assets and transactions to be carried out were limited on 4th Article of Communique as:
Real estates and Claims on real estates
Shares on companies including ones in privatization scheme, debenture bonds of private and public sector companies
Any debenture bonds or instruments which shall be transacted in accordance with Article 32nd of Act on Preservation of Turkish Lira No.89/4392 which became effective on 07.08.1989 and shares of associations
Time deposit certificates and non-interest account shares
Repot and reverse repot transactions
Lease certificates and certificates for real estates
Warrants and certificates
Money transactions regarding Clearing House transactions
Cash warrants and premiums of integrals
Foreign investment tools approved by the Board and participation and loan bonds
Other investment tools authorised by Board
In accordance with Article 53rd of Capital Market Law as well as with Article 5 of the Communiqué, it was stated that assets of the fund is different than asset of portfolio holder, founder and manager. Asset of the Fund shall not be declared as warrant or be pledged in any circumstance rather than protective integrals or to apply for loan (If it is mentioned on Communiqué or certificate of issue and if it is for the nature of fund). Also, there would not be any other authorisation on transaction including the transferring management and audit by portfolio issuer and holder over portfolio asset even to public authorities nor be pledged even to compensate public debt or be included in liquidation list or injunctive procedure shall be imposed. No financial compensation shall be applicable between obligations of founder and/or portfolio manager to third parties and receivables from such third parties to be collected by the fund itself.
In the Communiqué, it was mentioned as requirement that at least 80 % of total value of fund should be composed by real estate investments. While calculating such rate, following tools of investment are to be taken into consideration: capital markets investment tools issued by real estate partnerships, shares of corporations whose at least 75 % of balance sheet (prepared in accordance with related legislation) value is composed by real estate investment values, real estate certificates and other type of contribution shares in investment funds. Although there is a restriction on fund limit, there is no restriction in variation of real estate investments to be made. Real estate investments may cover real estate such as land, lot, residence, office, shopping mall, hotel, logistics unit, depot, park and hospital in accordance with Article 18/1 of the Communiqué. But it is a perquisite that necessary permits to use such real estates are to be received and Commonhold right is to be assigned prior to inclusion to fund portfolio. In other words, any real estate without Commonhold rights is not to be possessed. This circumstance creates acceleration in acquiring certificate of occupancy for residence by contractors and may increase the speed of diminishing real estate stock.
In case it is announced on informative bulletins, any real estate such as building, land, lot or similar type of real estate having pledge or any type of similar restriction or any rights on real estates shall be included in fund portfolio. The fund may not provide any service such as legal permit follow-up, financial feasibility, project control and development to third parties by its own staff. Also, the fund may not use any real estate such as supermarkets, hotels, supermarkets, shopping malls, workplaces, commercial parks, commercial warehouses, residences for commercial purposes
On the other hand, the minimum amount of portfolio of the fund is assigned by the Communiqué. In accordance with Article 17/1 of Communiqué, within 1 year since the contribution shares are sold to participants, the amount of fund should be raised up to 10 million TRL and contribution fees collected from shareholders are to be diverted to a investment within portfolio limitations. In case value of portfolio remains below minimum required level, the fund shall be abandoned from investment transactions and shall be erased from trade registry records within 6 months by the founder of the fund. Moreover, assets in fund portfolio are to be kept under the custody of an independent international fund holder in accordance with international legislation.