Turkey: Real Estate Certificates

I. Introduction

Real estate certificates are regulated under the communiqué of the Capital Markets Board ("CMB"), namely the Communiqué on Real Estate Certificates (VII-128.2) ("Communiqué").

As per the Communiqué, a "real estate certificate" is a kind of capital market instrument issued by issuers,[1] for the financing of real estate projects to be constructed in the future or in the process of being constructed, and that has a nominal value representing independent units or specified area units of such independent units of a real estate project.

The issuance of real estate certificates grants financing facility and resources to the issuers for the completion of the project. Furthermore, real estate certificates enable investors[2] to acquire real estate and/or invest their savings by collecting and trading the relevant certificates in the capital markets.        

II. General Merits of the Real Estate Certificates

Real estate certificates may be issued either domestically or internationally by issuers, through both public offerings and by selling them to qualified investors without public offering.  

In order for real estate certificates to be issued and traded on the stock exchange, the issuer shall apply to the CMB and to the relevant exchange, namely Borsa İstanbul A.Ş. ("BIST").

The details and specifications of real estate certificates (e.g., the execution of primary and secondary obligations of the issuer, the completion date of the project) are specified in the publicly available offering circular or in the issuance document of the issuer.

Before the issuance of the real estate certificates, the issuer should duly appoint an independent auditor (known as the "execution auditor") who is authorized to engage in capital market activities. The independent auditor is charged with auditing whether the execution of primary and secondary obligations of the issuer is in compliance with the offering circular or the issuance document. If the primary and secondary obligations have not been duly executed, the issuer would be liable to pay a penalty to the investors.

Investors may purchase real estate certificates in separate pieces and various quantities (without any quantity restrictions) through the authorized banks and brokerage firms.

The independent units that are subject to the issuance of the real estate certificates should not carry or be subject to any kind of encumbrance. Those independent units shall not be pledged, provided as guarantee, seized, transferred to a bankruptcy estate, or be disposed of in any manner, even if the issuer, its management or auditing is transferred to public institutions.

If the relevant provision is set forth in the terms of the offering circular or the issuance document, the issuer may take back the real estate certificates from the investors at a price to be determined by the issuer or by the BIST before the completion of the project, so long as it does not subsequently offer the certificates for sale again in the market. 

The Communiqué also enables the Housing Development Administration of Turkey ("TOKİ"), İller Bankası A.Ş., or their group companies and affiliates to issue real estate certificates having certain exemptions as to provisions of the Communiqué.

III. The Redemption of Real Estate Certificates

Real estate certificates are redeemed by the issuer by way of execution of primary and secondary obligations, and payment of the penalty amount as specified in the offering circular or the issuance document, if the relevant circumstances occur.

"Primary obligation" is defined as the transfer of title deed and delivery of the independent units by issuers to the investors, in exchange for the sufficient real estate certificates representing the relevant independent units.

If an investor already possesses sufficient real estate certificates, then it is able to request the execution of the primary obligation. Such requests should be conveyed to the issuer, to the authorized banks or to the brokerage firms within the primary obligation request period, as specified in the offering circular or issuance document. For the investors who request the execution of the primary obligation but do not have sufficient real estate certificates during the request period, the issuer may choose to grant credit facility or allow cash payments in lieu of real estate certificates, if such credit or cash payment arrangements can be made in accordance with the offering circular or issuance document.  

If the execution of the primary obligation is requested before the completion of the real estate project, in accordance with the offering circular or issuance document, then the issuer transfers the title deed to the investor or a preliminary agreement (or purchase agreement) is concluded for the independent unit between the issuer and the investor and this agreement is registered with the title deed registry. The purpose of the preliminary agreement and purchase agreement is to guarantee the execution of the primary obligation by the issuer.

"Secondary obligation" refers to the sale of the independent units corresponding to the relevant real estate certificates that are subject to the secondary obligation, and the distribution of the sale price to the investors in proportion to their existing real estate certificates.

If an investor does not request the execution of the primary obligation within the prescribed time period or fails to satisfy the relevant criteria as specified in the offering circular or issuance document, then the investor is deemed to have requested the execution of the secondary obligation.

If there are independent units not sold during the execution of the secondary obligation, average of the weighted average price occurred at the BIST over the last quarter before the maturity date[3] of the real estate certificates is calculated. This calculation is made to facilitate the redemption by the issuer of the real estate certificates corresponding to such independent units. Therefore, if the price cannot be duly calculated, or if the CMB or the BIST determines that the calculation is not proper, a value assessment report is prepared for the unsold independent units. Consequently, the relevant price for the redemption is determined in accordance with the value assessment report.

If it becomes apparent that the primary and secondary obligations cannot be executed on time, this would lead to a delay in the completion of the project. In such a case, the CMB may grant a time extension to the issuer, provided that the extension lasts no longer than 180 days, not including force majeure circumstances. In such a case, the issuer shall pay the penalty amount specified in the offering circular or issuance document to the investors, in addition to the execution of the primary and secondary obligations.

If the issuer cannot execute the primary and secondary obligations in spite of the extension of time, the investors are duly convened and they decide on: (i) the completion of the real estate project, or (ii) the sale of the uncompleted real estate project and the return of the sale price and the available funds obtained during the issuance of the real estate certificates to the investors, in proportion to their existing real estate certificates.

IV. Use of the Fund

The fund to be obtained during the issuance of the real estate certificates are deposited in a special bank account to be opened by the authorized banks or brokerage firms, and invested on behalf of the issuer in government bonds, treasury bills, lease certificates issued by the Undersecretariat of the Treasury, time deposit or participation accounts, or other capital market instruments, as determined by the CMB.

The fund is allocated as follows:

  1. 10% of the fund is transferred to the issuer before the commencement of the construction of the real estate project.
  2. With regard to the development process of the real estate projects, construction development reports are prepared by the relevant inspection authorities and 80% of the fund is transferred to the issuer depending upon the development progress of the construction, as stated in those reports.
  3. The remaining 10% of the fund is transferred to the issuer as of the maturity date.

If it becomes apparent that the real estate project cannot be completed on time, then the relevant part of the fund is not transferred to the issuer.

The fund to be obtained from the issuance of the real estate certificates may only be used for the completion of the real estate project or for the repayment of the financing sources used for the project. Other than these purposes, the fund shall not be pledged, provided as a guarantee, seized, transferred to a bankruptcy estate or disposed of in any manner, even if the issuer, its management or its auditing is transferred to public institutions. 


[1] The term "issuers" refers to the joint stock companies that issue real estate certificates or file applications to CMB for their issuance, as well as the public entities and institutions authorized to issue securities in accordance with their own laws and regulations.

[2] The term "investors" refers to holders of real estate certificates.

[3] "Maturity date" refers to the term between the issuance date of the real estate certificates and the expiration date of the relevant obligations as to the real estate certificates.


This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in June 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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