Real Estate Investment Funds (REIF) have been introduced to Turkish Law first by the Article 49 of the Capital Markets Law numbered 6362, dated 2012. They are regulated by the Turkish Capital Markets Board (CMB) via various communiques.
Turkish Real Estate Investment Funds is not a legal entity but a collection of assets. Though a Turkish Real Estate Investment Fund is not an entity, when it purchases a real estate, it can be registered as the owner at the land registry and in the title deed.
Generally Turkish Real Estate Investment Funds can invest in only real estate ownership and other rights to real estates like mortgages, call options etc. It can also invest in interest-bearing accounts, joint-stock companies that are heavily invested in Turkish real estates, other RIFs, government bonds and some other investment tools that are deemed appropriate by the CMB.
Turkish Real Estate Investment Funds are created with a total minimum capital of 10 Million TL, payable within one year, and they are managed by Portfolio Management Companies that have been licensed by the CMB. The assets of Turkish Real Estate Investment Funds are protected from legal seizures, bankruptcy proceedings, and enforcement proceedings. In other words, the creditors of the investors of the fund cannot seize the fund’s assets.
By investing in a Real Estate Investment Fund, the investors legally forfeit their right to control their assets, in accordance with the terms and conditions set out in the informative documents of the REIF. These informative documents are:
- By-law: The main contract that forms the basis of the legal trust relationship between the investors and the founder, portfolio manager and portfolio depository. If there will be any changes made in the by-law that are substantial enough to affect the investors’ decision to invest, the investors must be notified on any changes 30 days in advance before the changes come into effect. In this case, the investors may opt to withdraw their investments and the changes do not come into effect until the notification.
- Export documents: These documents determine the type of the fund and the terms of the sales. If there are any changes made in the export documents that are substantial enough to affect the investors’ decision to invest, the investors must be notified on any changes 30 days in advance before the changes come into effect. In this case, the investors may opt to withdraw their investments and the changes do not come into effect until the notification.
- Investor information form: It summarizes the structure, investment strategy and the risks of the Real Estate Investment Fund. The founder is liable for any inaccurate information in this form. The investors must be notified on any changes in the form.
The following principles apply to Turkish Real Estate Investment Funds:
- The founder and the manager of a Real Estate Investment Fund may or may not be the same person. In the event that they are different people, the founder signs a “portfolio management contract” with the manager. All the rights and obligations of the manager must be set out in this contract. Furthermore, the founder must inform all the investors without delay of any profit that the manager makes from a trade (whether it’s commission, fee, bonus etc.)
- Portfolio depository is a third party, appointed by the CMB, entrusted with storing the assets of the Real Estate Investment Fund. Portfolio depository keeps a record of the assets and keeps the assets in trust accounts on behalf of the REIF.
- Only “qualified investors” may invest in Turkish Real Estate Investment Funds. A qualified investor is someone who is considered to have sufficient knowledge on investments and finance and therefore cannot claim ignorance of the investments that they enter into. Minimum buy-in for non-institutional real person “qualified investors” is 1 Million TL.
- Investors join a Estate Investment Fund by buying shares from the fund. The value of the shares must be assessed and notified to the investors at least once a year, as per the terms set out in the export document.
- When and how the investors may leave the fund by selling the shares back to the fund or to the other qualified investors, are set out in the export document.
- By-laws and export document might impose commissions for entering the REIF, selling shares and leaving the REIF.
- Foreign investors may qualify for Turkish Citizenship by Investment by investing 500,000 USD into a Turkish Real Estate Investment Fund.
- By-laws, export document and information form may determine that the shares shall be sold at another price other than the assessed value of the shares.
- The value of the fund’s assets are all assessed by certified surveyors.
Investing into a Turkish Real Estate Investment Fund is an important decision that must be made only after consulting certified investment advisors. This post, while recapping the basic aspects of a REIF, may consist of outdated information or draw incorrect conclusions and therefore cannot be construed as an investment or a binding legal opinion on any particular person or matter. For an actual legal opinion on a particular subject, please consult an attorney.
Antalya Lawyer Baris Erkan Celebi and his Antalya Law Firm offer legal due diligence for investors who wish to understand the legal aspects of Turkish Real Estate Investment Funds.
