29 June 2015
Turkey Seeks Property Fund Rules to Attract International Cash
Turkey is seeking to boost international investment in its property market by allowing the creation of funds that can invest in development.
Funds that exclusively market Turkish property abroad will be allowed to finance real estate development if the companies that operate them accept new standards for risk management and capital reserves proposed by the Ankara-based Capital Markets Board, the regulator said by e-mail.
“We aim to tap into areas that are the focus of global investors’ demand, particularly from Gulf countries, and develop a strong and institutional model that can withstand risks,” the Capital Markets Board said on June 24.
The proposed fund regulations are part of a government effort to increase transparency in financial markets and allow performance comparisons of all funds sold in Turkey. Regulators are seeking to boost increase investment from abroad as nation’s economy slows. Companies focused on selling Turkish real estate overseas have been largely unregulated by the capital markets board until now.
“This will bring transparency and safeguards to the real estate market,” Alaeddin Babaoglu, chairman of Amplio Real Estate Investment in Istanbul, said by phone on Thursday.“It’s hard for real estate investors to compare prices in the current non-transparent conditions that bloated property prices.”
Under the current rules, only real estate investment trusts can invest in development. Real estate funds that market properties to domestic investors will still be unable to invest in development under the new regulations.
Turkey has 700,000 to 800,000 surplus homes, mainly in Istanbul, according to Kerem Tezcan director of research at BGC Partners. Prices in Istanbul rose 28.6 percent in April from a year ago, central bank data shows.
Currently, property projects are usually financed with bank loans and pre-sales. The new rules would allow funds to invest in so-called greenfield projects on undeveloped land.
“Greenfield projects may offer more opportunities with added value, which investors lacked before with finished projects,” Murat Gulkan, managing director of Istanbul-based Unlu Portfolio Management, said by e-mail. “However they also carry more risks.”
Fund management companies that want to invest in development will be required to hold at least 20 million Turkish liras ($7.5 million) in initial capital and equity capital, according to the Capital Markets Board.
A draft of the new regulations will be circulated for comments and amendments until July 15. It will go into force when the regulator publishes it in the official gazette.
“Property investments will be under the Capital Markets Boards’ guarantee, the quality factor will come to light and unfair competition will be avoided,” Babaoglu said.