Authors: Capital Markets Law Department, Atty. Mustafa Şahin

Introduction

Real estate investment companies (“REICs”) are important capital market institutions that bring together the real estate sector and capital markets. Through REICs, investors are able to gain exposure to the real estate market without directly acquiring real estate, by investing indirectly in portfolios consisting of real estate assets, real estate projects and real estate-related rights.

The legal framework governing REICs in Türkiye is primarily established under Capital Markets Law No. 6362 (the “CML”) and the Communiqué on Principles Regarding Real Estate Investment Companies No. III-48.1 (the “Communiqué”) issued by the Capital Markets Board of Türkiye (the “CMB”). The Communiqué sets out a comprehensive regulatory framework covering, among other matters, the establishment and conversion of REICs, public offerings of their shares, investment activities, portfolio limitations, valuation principles and public disclosure obligations.

This article provides an overview of the main characteristics and operation of REICs under the Communiqué.

Concept and Key Characteristics of REICs

Under the Communiqué, a REIC is a capital market institution established for the purpose of issuing shares and managing a portfolio consisting of real estate, real estate projects, real estate-related rights, infrastructure investments and services, capital market instruments, Takasbank money market and reverse repo transactions, certain deposit and participation accounts, subsidiaries and other assets and rights designated by the CMB.

REICs may be established to manage a portfolio exclusively consisting of infrastructure investments and services or a portfolio consisting of the other assets and rights specified under the Communiqué. They may also be established for the purpose of investing in a specific project, real estate asset or infrastructure investment and service, or for carrying out activities in a particular field.

Where a REIC is established to operate in a specific field or to invest in a particular project, real estate asset or infrastructure investment and service, at least 75% of its total assets must consist of investments made within the scope of such activity, project or asset.

The principal business model of REICs is based on the establishment and management of an investment portfolio rather than the direct commercial operation of real estate assets. REICs may generate income through the acquisition, disposal or leasing of properties and may also invest in real estate projects and other assets permitted under the Communiqué.

Investors in REICs therefore participate indirectly in the economic performance of the real estate portfolio by acquiring shares in the company rather than directly acquiring ownership of the underlying properties. In addition to any dividends distributed by the company, investors may also benefit from changes in the market value of publicly traded REIC shares.

Establishment, Conversion and Public Offering

A REIC may either be directly incorporated as a joint stock company or an existing joint stock company may be converted into a REIC by amending its articles of association in accordance with the CML and the Communiqué.

For an establishment or conversion application to be approved by the CMB, certain requirements relating to the company’s legal structure, capital, shareholders, management and portfolio must be satisfied.

In particular, the company must be incorporated as a joint stock company subject to the registered capital system or, in the case of an existing joint stock company, must apply to the CMB to adopt the registered capital system.

For 2026, the initial capital of a newly established REIC, or both the paid-in or issued capital and shareholders’ equity of a company converting into a REIC, must each be at least TRY 1,500,000,000. For companies exclusively managing portfolios consisting of infrastructure investments and services, this threshold is TRY 2,250,000,000.

In addition, the founders or existing shareholders must satisfy the qualifications prescribed under the Communiqué, the articles of association must comply with the CML and the Communiqué, the members of the board of directors and the general manager must meet the applicable eligibility requirements, and the assets to be included in the portfolio must comply with the relevant portfolio qualifications and limitations.

The company’s trade name must also include the expression “Gayrimenkul Yatırım Ortaklığı”.

One of the key features of REICs is the public offering requirement. A company established as, or converted into, a REIC must, within three months following the registration of its incorporation or the relevant amendment to its articles of association with the trade registry, establish the organisation required to conduct its activities and apply to the CMB for approval of the prospectus relating to the public offering of shares representing at least 25% of its issued capital.

Following the public offering, shares representing at least 25% of the company’s issued capital must qualify as publicly held shares.

Failure to submit the relevant application within the prescribed period, or rejection of the application by the CMB due to failure to satisfy the applicable requirements, may result in the company losing its right to operate as a REIC.

Permitted Activities and Investment Areas

Subject to the limitations set out in the Communiqué, REICs may acquire, dispose of, lease and lease out land, plots, residential properties, offices, shopping centres, hotels, logistics centres, warehouses, parks, hospitals and similar types of real estate. They may also enter into agreements for the promise to purchase or sell such assets.

REICs may develop real estate projects on land owned by them and, subject to certain conditions, may also develop projects on land owned by third parties under revenue-sharing or construction-for-land-share arrangements or by establishing rights of superficies.

REICs may also invest in certain financial assets within the limits prescribed under the Communiqué, provided that such activities do not constitute intermediary activities.

However, REICs are subject to significant restrictions intended to preserve the investment-oriented nature of their activities.

In particular, REICs may not collect deposits or participation funds, engage in commercial, industrial or agricultural activities other than those expressly permitted under the Communiqué, directly undertake construction works relating to real estate or infrastructure investments and services, or extend loans.

They may also not continuously engage in short-term real estate trading or, except for their wholly owned subsidiaries, provide financing to related parties where such financing does not arise from the sale of goods or services.

Construction works relating to projects undertaken by REICs must, as a general rule, be carried out by contractors pursuant to agreements setting out the respective rights and obligations of the parties.

REICs may nevertheless borrow funds in order to meet their financing requirements or portfolio-related costs. Under the Communiqué, they may obtain credit up to five times their shareholders’ equity as reflected in their publicly disclosed unconsolidated or individual financial statements. Financial leasing liabilities and non-cash loans are also taken into account when calculating this limit.

REICs may also issue debt instruments within the limits prescribed under capital markets legislation.

Portfolio Structure and Limitations

The Communiqué imposes various quantitative and qualitative restrictions on the composition of REIC portfolios in order to ensure that their activities remain predominantly focused on real estate investments.

REICs are required to invest at least 51% of their total assets in real estate, real estate projects, real estate-related rights, participation units of real estate investment funds and certain wholly owned subsidiaries specified under the Communiqué.

For REICs exclusively managing portfolios consisting of infrastructure investments and services, at least 75% of their total assets must, as a general rule, consist of the relevant assets and investments.

The Communiqué also places limits on investments in certain non-real-estate assets and subsidiaries. For ordinary REICs, such investments may generally represent up to 49% of total assets, while investments in certain deposit and participation accounts are limited to 10% of total assets.

A separate restriction applies to land and plots held in the portfolio without being developed. Land and plots in respect of which no action towards project development has been taken within five years following their acquisition may not exceed 20% of the company’s total assets.

Certain legal and technical requirements also apply to real estate assets included in the portfolio.

As a general rule, an occupancy permit must have been obtained and condominium ownership must have been established for buildings and similar structures to be included in the portfolio.

Subject to the exceptions provided under the Communiqué, real estate assets and real estate-related rights to be included in the portfolio must also be free from mortgages or encumbrances that directly and materially affect their value.

In addition, for projects to be undertaken by or invested in by the REIC, an independent real estate valuation company must determine that the necessary permits have been obtained, the project has been duly prepared and approved, and all legally required documents for the commencement of construction are complete and accurate.

Accordingly, the establishment and management of a REIC portfolio requires consideration not only of the economic characteristics of the relevant investments but also of their legal status, title deed records, project permits and compliance with the applicable portfolio limitations.

Valuation

Independent valuation constitutes one of the key elements of the regulatory framework applicable to REICs.

Under the Communiqué, REICs are required to have the fair values and, where applicable, fair rental values of assets and rights determined by qualified independent valuation companies in connection with certain transactions.

Transactions subject to valuation requirements include, among others, the inclusion of real estate, real estate projects and real estate-related rights in the portfolio or their disposal from the portfolio, the leasing of real estate held in the portfolio, the leasing of real estate for the purpose of subleasing, the renewal or extension of certain lease agreements, the acceptance of mortgages over real estate and contributions in kind.

Assets in the portfolio whose fair values have not otherwise been determined during the final three months of an accounting period are also subject to year-end valuation.

Valuation services must be obtained from real estate valuation companies included in the CMB’s authorised list and satisfying the applicable independence requirements.

A REIC may receive valuation services from the same valuation company in respect of a particular asset for a maximum of three consecutive years. Following the expiry of this period, at least two years must, as a general rule, pass before the same valuation company may again be engaged for that asset.

The Communiqué also regulates the relationship between the appraised value and the transaction price.

Acquisitions, disposals, leases and similar transactions relating to real estate, real estate projects, real estate-related rights and infrastructure investments and services must be carried out taking the relevant appraisal values into consideration.

Where an acquisition is made at a price exceeding the appraised value, or a disposal or lease transaction is carried out at a price below 95% of the appraised value, taking into account prevailing market or payment conditions, the relevant circumstances must be publicly disclosed in accordance with the CMB’s rules on material event disclosures and submitted to the shareholders for information at the first subsequent general assembly meeting.

The valuation framework is complemented by public disclosure requirements. Information regarding compliance with portfolio limitations must be reflected in the company’s financial statements, while board of directors’ annual reports must contain, among other matters, summaries of valuation reports, information on the current status of projects and details regarding leased portfolio assets.

These requirements aim to ensure that investors have access to regular and comparable information concerning the value and composition of the company’s portfolio.

Conclusion

REICs provide an institutional and regulated structure through which real estate investments may be carried out through the capital markets without requiring investors to acquire the underlying real estate assets directly.

However, REIC status involves considerably more than holding real estate investments through a joint stock company. The capital and shareholder requirements applicable at the establishment or conversion stage, public offering obligations, portfolio limitations, restrictions on activities, independent valuation requirements and continuing public disclosure obligations together create a comprehensive regulatory framework for REICs.

Accordingly, when establishing a REIC or converting an existing joint stock company into a REIC, it is important to consider not only the economic characteristics of the contemplated real estate investments but also the legal status of the relevant assets, the composition of the portfolio, the company’s capital structure, the public offering process and the continuing obligations arising under capital markets legislation.