Turkey: Limitations on Real Estate Investment Companies

Real estate investment companies ("REIC"), investing the real estate projects and/or rights in rem, are strictly regulated by the Capital Markets Authority. The REIC's investments and activities are restricted on several matters with the Communiqué on Principles of Real Estate Investment Companies ("Communiqué"). However, on January 17, 2017, several provisions of the Communique were amended that may allow a bit more free area to the REIC on some areas, such as (i) a REIC may provide security, for the benefit of its 100% affiliate, to secure the credit extended to finance its affiliate's investments on a real estate and (ii) a REIC may lend to its related companies, provided that such amount is lend for the sale of a good or services. In accordance with the Communiqué including the amendments made on January 17, 2017, the most important limitations on real estate investment companies1

(I) The Establishment of Encumbrances

Article 30 of the Communiqué regulates that a REIC shall not grant mortgages, rights in rem or other encumbrances or any other restrictions over the real estate in the REIC's portfolio, except (provided that the REIC's articles of association allow such actions):

(1) in flat and revenue sharing projects, if the real estate owners grant construction rights to the REIC or transfer the ownership of the real estate to the REIC free of charge or for a low price, to secure flat and revenue sharing projects; 

(2) to finance the REIC's acquisition of a real estate or rights in rem; and

(3) to utilize loans for its investments.

Article 22(c) of the Communiqué regulates that a REIC shall not acquire a real estate with rights in rem or a mortgage or any encumbrance that may directly or materially affect the value of the real estate.

A REIC may develop a project on a real estate with a mortgage, if the amount of the mortgage established thereon does not exceed 50% of the real estate's value, as calculated in the last appraisal report, and the total amount of the mortgage established on the real estate does not exceed 10% of the total assets of the REIC, as disclosed in its most recent financial statements, which must be audited by an independent audit firm and disclosed by the REIC to the public.

With the amendments to the Communiqué made on January 17, 2017, a REIC may provide security, for the benefit of its 100% affiliate, to secure the credit extended to finance its affiliate's investments on a real estate.

(II) Borrowing Limits

Article 31(1) of the Communiqué regulates that a REIC shall not utilize credit exceeding five times its shareholders' equity, as stated in their non-consolidated or solo financial statements prepared and issued by them at the end of the relevant accounting period and disclosed to the public. When calculating the aforementioned credit limits, financial leasing transactions, credits utilized under Article 22 of the Communiqué, and non- cash credits shall also be taken into consideration.

With the amendments to the Communiqué made on January 17, 2017, a REIC may lend to its related companies, provided that such amount is lend for the sale of a good or services.

(III) Construction Works

Article 31 of the Communiqué regulates that a REIC shall not carry out construction works, preparatory, manufacturing, drilling, installation, replacement, improvement, modernization, development, assembly or any other similar works on the REIC's projects. The aforementioned works must be made by a contractor under an agreement regulating the parties' rights and obligations. The agreement to be executed with the contractor shall, at a minimum, cover the contractor's debts, payment conditions, warranties and representations, as well as the conditions of rescission from the contract, the rights of claim of the employer and the conditions of the termination of the contract. The REIC's board of directors should review and confirm the contractor and the provisions of the relevant agreement.

(IV) Participation in Other Companies

Article 28 of the Communiqué regulates that a REIC shall only be allowed to participate in other companies as listed below:

  • Operator companies, provided that the participation of REICs in operator companies does not exceed 10% of the REIC's total assets, as stated in the REIC's financial statements issued at the end of the accounting period and disclosed to the public;
  • Other REICs;
  • Companies established under build-operate-transfer projects;
  • Companies established abroad, only in the real estate sector and solely for the purpose of including particular real estates or rights in rem in its portfolio;
  • Companies established in Turkey, where the total value of real estate assets or rights in rem is equal to at least 75% of the total assets of the relevant company, as indicated in its financial statements, prepared and issued according to the relevant legislation; and

In companies providing infrastructural services such as road, water, electricity, gas, sewerage, landscaping and environmental services with regard to real estates, rights in rem or real estate projects that are included and/or planned to be included in the REIC's portfolio, but only in the event that such services are required to be provided only by companies established or to be established solely for the provision of such services, in accordance with the legal requirements set forth in the relevant laws.


(1)This article does not include the limitations on real estate investment companies investing solely in infrastructural investments and services.


This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in March 2017. A link to the full Legal Insight Quarterly may be found here.


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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