New Regulation to Revitalise Turkey's Urban Renewal and Housing Accessibility
By: Cameron Deggin
Turkey is finalising a new regulatory framework aimed at enhancing urban transformation financing and increasing housing supply, according to Treasury and Finance Minister Mehmet Şimşek. This regulation will enable Turkish real estate investment funds to directly invest in property development projects, a shift expected to alleviate housing market pressures and make housing more accessible.
Project Real Estate Investment Funds
The new framework, spearheaded by the Capital Markets Board (SPK), focuses on establishing Project Real Estate Investment Funds (Project REIF). These funds will be distinct from traditional real estate investment funds by including "project" in their titles and allowing them to invest in land and real estate projects directly. This move is expected to ease high housing prices and interest rates, which had driven house sales in Turkey to a nine-year low in 2023.
One key feature of the new regulation is a collateral mechanism designed to mitigate project-related risks for investors. This mechanism will secure the fund's rights from revenue-sharing agreements and offer investors multiple exit strategies, such as selling or renting the completed real estate or taking possession of the property. This flexibility aims to protect investors from potential grievances and ensure their investment decisions remain sound.
Regulation set to increase number of Funds
Currently, Turkey has 184 real estate investment funds with approved issuance certificates, with 149 having established portfolios valued at approximately TL 82.7 billion ($2.57 billion). The new regulation is expected to increase the number of these funds significantly. Şimşek emphasised that the solid collateral-based structure of these funds would ensure the safe implementation of real estate projects, enabling investors to own homes in a secure environment.
Stakeholders believe this regulation will address financial bottlenecks, boost production, and create a more dynamic and accessible housing market. Engin Keçeli, head of the Istanbul Builders Association (INDER), highlighted that high interest rates had made financing challenging, and this regulation would open new avenues for development. He drew parallels to successful implementations in the U.S. and U.K., stressing the importance of supporting real estate investment funds for new projects.
Accelerating Urban Transformation and new housing supply
The regulation also addresses Turkey's recent efforts to accelerate urban transformation, particularly after the devastating earthquakes that hit the southeastern region. The Chair of a Portfolio Investment company, emphasised the importance of institutional money flowing into new real estate avenues, noting that this regulation would create a new real estate sector in Turkey where institutional capital can thrive. He also highlighted the role of other SPK instruments, such as asset-backed securities and rental certificates, in paving the way for more transparent and institutionalised investments.
The Head of a Holding Investment company, praised the regulation as a significant boost for new housing supply and urban transformation, noting the need for alternative financing sources beyond the well-developed banking system in Turkey. Another expert described the regulation as a lifeline for the sector, particularly for low-income homebuyers, and indicated plans to establish their own fund to support the regulation's positive impact on housing prices and accessibility.
The General Manager of a Real Estate Investment Trust (REIT), emphasised that the revitalisation of real estate investment funds would contribute to various areas, including urban transformation, social housing, and addressing supply shortages. She noted that this regulation would also help correct imbalances in housing prices, supporting a more sustainable and manageable housing supply.
A decisive role in Urban Regeneration
In summary, Turkey's new regulation for real estate investment funds is set to transform the housing market by enhancing urban renewal efforts, increasing housing supply, and providing secure investment opportunities. This initiative is expected to attract significant institutional investment, stabilise housing prices, and address the country's pressing housing needs.
"Structured instruments such as real estate investment funds should play a decisive role in urban regeneration. These funds facilitate comprehensive urban planning and large-scale area redevelopment, as opposed to the limited scope of small-scale renewal of blocks of properties. This requires substantial funding and finance, emphasising the importance of investment funds in driving these transformative projects."
Cameron Deggin
For further information about Turkish Real Estate Investment Funds and their potential to shape the future of the country, please contact us to speak with our expert advisors and dedicated Fund Managers in Turkey.
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