Turkish Real Estate Investment Funds

Turkish Real Estate Investment Funds(REIF)

 REIFs are  asset pools (collective investment schemes) with no legal personality, established and managed by PMCs or REPMCs that have operating licenses from the CMB, for a definite or  indefinite period of time, on behalf of QIs, on the basis of fiduciary ownership, for the purpose of making real estate investments in a wide range of real property assets such as land, real property, residences, offices, shopping malls, hotels, logistical centres, warehouses, parks, and hospitals.

REIFs have “legal personality” only for the purposes of land registration, changes related to registration, cancellations and corrections at the Land Registry Office.

The key characteristic features of REIFs

  • REIF units can only be sold to QIs;
  • the minimum amount of the fund to be raised and invested must be  at least TL 10 million within one year following issuance of units (otherwise the fund must be liquidated);
  • REIFs can only be established and managed by Turkish PMCs or REPMCs which require licenses issued by the CMB;
  • the founder (founding Turkish PMC or REPMC) may manage the fund, or alternatively, a third party Turkish PMC or REPMC can be assigned as the manager;
  • REIFs do not have legal personality (except for property law purposes) but rather they are asset pools contractually created with a Prospectus;
  • REIFs cannot engage in any activity other than Real Estate Investments and Other Allowed Investments (e.g., investment fund participation units, repo and reverse repo transactions);
  • unlike REICs, REIFs cannot invest in real estate development projects;
  • at least 80% of the total value of a REIF should be composed of Real Estate Investments;
  • assets of REIFs should be kept by an independent portfolio custodian;
  • assets of REIFs must remain separate from the assets of the founder  (principal), the custodian, and the manager;
  • REIFs are regulated and supervised by the CMB; and
  • REIFs are fully exempt from corporate taxation.

What do REIF’s mean for real estate investors and the industry?

International real estate investors have been heavily investing in Turkish real estate since 2003. Almost all major real estate players – open and closed end real estate funds, private equity investors, big real estate firms, developers, sovereign wealth funds, individual investors etc. – have entered the Turkish market.

Turkey, as one of Europe’s most promising emerging real estate markets, with its advantageous demographic figures, stable economic growth and endless development potential in several cities around the country, will definitely attract this new wave of real estate investors, and newly introduced real estate tools such as real estate certificates, infrastructure real estate companies/trusts, and finally, real estate funds, will surely encourage them to invest.

Turkish REIF regime in line with globally accepted standards. Therefore, the newly introduced Turkish REIF regime will provide a secure alternative for both local and international real estate investors.

Turkish REIFs will likely to motivate local players and land owners to enter  into joint investments with international investors.

REIFs are an investment product which has long been needed by real estate investors. REIFs will allow investors to invest,  tax efficiently, in a pool of real estate assets managed by  Turkish real estate professionals.

New projects will be developed much more easily with the help of REIFs, since the alternative instrument, the  Turkish REICs, require a public offering in Borsa Istanbul (meaning red tape, heavy disclosure burdens and risks attached to capital markets), whilst public offering is not required for Turkish REIFs.

In addition, as compared to REICs, REIFs provide for much more efficient exits for investors through redemptions. REIFs would also open new opportunities for pension funds and Islamic finance investors.

Turkish Capital Markets  takes a supervisory role for REIFs. This provides great freedom to REIF Founders to tailor the specific operation and management of fund investment, alongside minimum standards which cannot be departed from in an REIF’s  Prospectus, Issuance Certificate and Key Investor Information Document.

The advantages of REIFs:  Tax benefits  and reduced regulation.

Income earned by a Turkish REIF is fully exempt from corporate tax. Moreover, REIF income benefitting from corporate tax exemption is also subject to 0% withholding tax. There is no further withholding taxation upon dividend distributions/redemptions to/by QIs of REIFs.

Both cash dividend receipts (e.g., periodic) from REIFs and cash proceeds from returning Units to the Founder (redemption) by QIs possess the same characteristics for Turkish tax purposes.

Therefore, income generated by REIF investors by either means should be treated as “dividend income”.

REIF Units can only be sold to QIs. Any person owning at least TRY1,000,000 worth of financial assets, including bank reserves and/or capital market instruments shall be classified as a QI. Also, QI status is granted to intermediary institutions, banks, pension funds, and similar financial institutions.

Additionally, companies are eligible for QI status where two of the following criteria are met: a minimum of TL 50 million in total assets; a minimum of TL 90 million in annual net revenue; and/or a minimum TL 5 million in cash capital.

Exit by redemption or QI to QI transfer QIs may exit from REIFs either by returning their Units to the Founder (redemption) or transfer to another QI (QI to QI transfer),

 Commission on sale and redemption Commission may be charged both on the sale of Units to QIs and the redemption of Units by QIs, depending on the terms specified in the IC. Such a commission charge (if any) should be treated as income to the REI.


Additional safeguards are likely to be offered to QIs in the Prospectus, IC and related documents, but the minimum legal requirements safeguarding QIs participating in REIFs include:

  • an Investment Committee
  • declaration of participation Unit value to participating QIs at least annually
  • mandatory appointment of an auditor in the Issuance Certificate
  • credit limitations on the total amount undertaken and the total value encumbered by the REIF founder/manager and mandatory declaration thereof
  • custodian is a necessary signatory for significant REIF transactions
  • QI notification by REIF Founder/Manager of undertaken investments within 15 days
  • independent appraisal by a CMB listed appraiser for significant transactions (sale/lease)
  • mandatory expertise required of REIF founder/manager and investment committee
  • REIFs must exclusively invest in Real Estate Investments (at least 80% of the total fund value)

Management of REIFS

Assets should be for the benefit of and in line with the interests of the QIs and shall be principally governed by the Prospectus and the IC.

Rules and principles set forth in the CMB Communiqué on Portfolio Management and the Capital Markets Law determine the minimum standards applicable only.

The Founder’s Board of Directors represents the REIF in the execution of all activities and this authority can be delegated to one or more board members.

Certain duties may not be delegated, such as fund establishment, issuance of units, liquidation, increasing portfolio management fees and other transactions which may potentially impact on the investment decisions of the QIs.

Real estate expertise requirements

An Investment Committee should be created by the Founder comprising at least three persons: one Founder Board Member with five years real estate investment experience, one appraisal expert holding a Real Estate Appraisal License, and one university graduate with five years in real estate investment experience.

No regulatory cap for management fees

In the absence of a regulatory cap, management fees may be charged to the REIF at periods determined in the Prospectus and the IC. Whether management fees reduce an investor’s unfunded commitment is determined in the Prospectus and the IC. Also, the management fee may be arranged to reduce after the end of the investment period.

Additionally, there is no regulatory prohibition against a management fee offset mechanism, requiring adjustment to the fund management fee against a percentage of management services, transaction fees and other fees received from the REIF’s real estate investments.

Moreover, a Performance Fee may be charged at the end of each end of accounting period or on redemption dates, but exclusively on income from Real Estate Investments, or capital gains upon exit from Real Estate Investments.

Classifying Real Estate Investments

All investments in real estate and related rights are considered real estate investment for REIF purposes. The Founder or the Portfolio Manager of an REIF may engage in the sale, purchase, lease, and promise to sell and buy all types of real estate for the purpose of generating income based on lease, sale and purchase.

Investment in capital markets instruments issued by REICs, real estate certificates, participation units of other REIFs, as well as shares of joint stock companies with a minimum 75% of real estate investments in their total assets, are considered real estate investments under the above thresholds.

Investment Principles

REIF Founders have extensive powers to engage in real estate investment activities on behalf of the REIF, including establishing encumbrances, construction rights and other such rights over realty. These powers are limited in accordance with the REIF Communique and their scope is further determined in the Fund Information Documents (i.e., IC,

Apart from Real Estate Investments, REIFs are only permitted to invest in the below (Other Allowable Investments):

  • shares of joint stock companies registered in Turkey,
  • public and/or private debt instruments,
  • foreign public and/or private debt instruments and shares of foreign companies as long as the requirements of the Foreign Exchange law are met,
  • bank deposits and participation bank account deposits,
  • investment fund participation units,
  • repo and reverse repo transactions,
  • warranties and certificates,
  • lease certificates and real estate certificates,
  • Settlement and Custody Bank money market transactions,
  • cash collateral for derivative market instruments and premiums,
  • foreign special purpose investment instruments to be approved by the CMB, and
  • other investment instruments to be approved by the CMB.

CMB Watchdog role

All accounts and operations of the Founder in relation to REIFs are subject to CMB supervision. In addition to periodic reports and financial statements, the CMB may request information whenever deemed necessary.

Primary Protection

REIF assets cannot be set off from the debts and obligations of the Founder to third parties against receivables the Fund will obtain from the same such third parties. Furthermore, REIF assets cannot be pledged or otherwise collateralized for any reason not provided in the IC and the Prospectus. Additionally, REIF assets benefit from partial immunity in respect of disposal, confiscation, subject to an interim injunction, or included in a bankruptcy estate for purposes, including collection of public debts.

Role of Custodian

Assets of the REIF should be monitored in accordance with provisions of the Communiqué on Custodianship of Portfolios, and documents, records and information should be maintained by the portfolio custodian.

 An example of a possible REIF Objective and Strategy


The  objective of the Fund is to invest in a diverse range of Shari'ah compliant development projects and value added real estate projects located primarily in Turkey. The Fund is a long-term investment vehicle designed to achieve an expected net IRR of 18%-20% per annum.


The investment strategy of the Fund will be to allocate its investments among office, warehouse, retail and residential properties, with an emphasis on residential and mixed use developments that combine both residential and commercial uses.

Investment Features

Focused investments on high growth real estate sectors in Turkey . All investments are according to Islamic Shari'ah Principles and denominated in US Dollars. Target net IRR of 18%-20% per annum.

Fund Investments and Target Sectors

  • Residential: 30% - 70%
  • Retail: 15% - 60%
  • Office: 10% - 40%
  • Industrial / Warehouse: 5% - 25%


PMC:      Portfolio Management Company

RPMC:   Real Estate Portfolio Management Company

CMP:      Capital Market Board

QI:          Qualified Investor

REIF:      Real Estate Investment Funds

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