Authors: Capital Markets Department, Prof. Dr. Ali Paslı, Attny. Mustafa Şahin

INTRODUCTION

The real estate sector in Turkey has long been a focal point for both individual and institutional investors. With its stable value appreciation and rental income potential, real estate has traditionally been regarded as a safe haven. However, for many years, investments in this sector relied heavily on direct ownership, which was both costly and limited in terms of liquidity. The development of capital markets instruments introduced Real Estate Investment Funds (“REIFs”), creating a new investment model for qualified investors.

REIFs are based on the principle of channeling funds collected from qualified investors into real estate investments under the management of portfolio management companies. Through these funds, investors can participate in real estate income by acquiring fund participation shares instead of direct ownership. This model not only provides access to professional management but also allows investors to share in the returns generated by real estate.

Nevertheless, for many years, REIFs were unable to directly invest in real estate projects. The Communiqué on Real Estate Investment Funds (III-52.3) (“Communiqué”) only permitted completed real estate assets with finalized title deed procedures to be included in fund portfolios. This limitation prevented REIFs from playing an effective role in financing ongoing projects. With the recent amendment introduced by the Capital Markets Board (“CMB”), this barrier has been lifted and Project Real Estate Investment Funds (“Project REIFs”) have emerged.

A. THE BASIC STRUCTURE OF REIFS

REIFs are asset pools without legal personality but are deemed to have legal capacity for certain transactions. They are established by portfolio management companies, and the funds collected in exchange for participation shares are transferred into these asset pools. A REIF portfolio may include land, plots, residential units, offices, shopping malls, hotels, logistics centers, and similar types of real estate, managed on behalf of the investors.

Portfolio management companies are responsible not only for making investment decisions but also for ensuring the fund’s compliance with applicable regulations. This structure instills confidence in investors while also promoting institutionalization within the real estate sector.

B. THE COMMUNIQUÉ AMENDMENT AND THE BIRTH OF PROJECT REIFS

For many years, the investment scope of REIFs remained limited. Incomplete projects, properties under construction, or project development activities could not be included in fund portfolios. This restricted the ability of REIFs to serve as a more dynamic financing tool within the real estate market.

With the 2024 amendment, a new type of fund called Project Real Estate Investment Funds was introduced. These funds are now allowed to invest in projects where more than half of the gross area of the independent sections is developed for residential use. In other words, while traditional REIFs could only allocate capital to completed real estate assets, Project REIFs can now channel resources into development-stage projects.

This amendment not only expanded the investment opportunities for funds but also created an alternative financing channel for real estate developers. While developers gained access to a new institutional source of capital, investors were offered the chance to benefit from the potential value appreciation of ongoing projects.

C. INVESTMENT AREAS OF PROJECT REIFS

The most significant feature of Project REIFs is their ability to focus their portfolios on projects. The areas in which these funds may invest are explicitly regulated under the Communiqué: