New regulation accelerating urban revitalization of Türkiye and housing availability

According to the Minister of Treasury and Finance, Mehmet Şimşek, Türkiye is close to completing work on the new regulation, which is to serve as an instrument to increase the financing of the transformation of urban areas and the supply of housing.

The regulation is intended to allow real estate investment funds to directly invest in development projects, Şimşek said on Sunday.

“The portfolios of these funds will be adjusted and restructured accordingly. As housing supply increases, market pressure on housing prices will ease and make housing more affordable for all segments of society.”

Under the leadership of the Capital Markets Council (SPK), the relevant studies for the establishment of the Real Estate Investment Funds Project (REIF Project) have reached the final stage, the minister told Anadolu Agency (AA).

High prices and rising interest rates have pushed home sales in Turkey to a nine-year low in 2023. Market activity is expected to pick up at least until the last quarter of the year, when inflation is expected to decline sharply amid a tight monetary stance.

Şimşek pointed out that until now, real estate investment funds could not invest in this type of projects or undertake construction work on their own.

“Thanks to the SPK regulation, these restrictions will be abolished. Project real estate investment funds will be able to include land and real estate projects in their portfolio. These funds will be different from existing real estate investment funds because they will implement a “designation in titles” project, he explained.

The new regulation also provides for a security mechanism that aims to limit the risk associated with the project for investors. This measure will safeguard the fund’s rights under income-sharing agreements, Şimşek said.

“Additionally, investors will have the right to exit the fund in the event of changes that could affect their investment decisions, preventing potential investor complaints,” he added.

Investors will have a number of exit strategies available, including selling or renting the completed property or foreclosing on the property itself.

Türkiye has 184 real estate investment funds with issue certificates approved by SPK. Some 149 funds have created portfolios with a total value of about TL 82.7 billion ($2.57 billion).

“We expect that the number of these funds will increase with the new regulation,” Şimşek said.

“Thanks to a solid fund structure based on collateral, the production of real estate projects will be able to be safely implemented. Investors will be able to own a home in this trusted environment, valuing their small savings according to the logic of the cooperative system. “

Increasing production, stabilizing prices

Stakeholders hope the regulation will ease financial bottlenecks, increase production and lead to a more dynamic and accessible housing market.

Engin Keçeli, head of the Istanbul Builders Association (INDER), noted that the association had also been working on the project for some time.

“Given the high interest rates, financing is a challenge. This regulation will open up new opportunities for us,” Keçeli said. He emphasized that the support of investment funds in the real estate market is crucial for new projects, comparing them to successful implementations in the USA and Great Britain

The tightening policy since June last year saw the central bank’s benchmark interest rate rise from 8.5% to 50% as authorities sought to tame inflation, which is now nearly 70%. The maximum level reaches as much as 75% in May, followed by cooling in the second half of the year.

Officials and the central bank expect it to end the year at 38%.

Last week, the central bank left the one-week repo rate unchanged for the second month in a row, as expected, while remaining cautious about inflation risks.

The government has also stepped up efforts to further accelerate the transformation of cities after devastating earthquakes that hit Turkey’s southeastern region last year and leveled hundreds of thousands of buildings.

Keçeli highlighted the significant demand for urban transformation, for which financing is the main obstacle.

“This regulation will provide financing to both home owners planning renovation and developers. It will be a solid financing model, offering cheap financing and having a positive impact on the production and sale prices of apartments,” he added.

Rescue for the transformation of cities

Bekir Yener Yıldırım, chairman of Neo Portfolio, agreed with these opinions, emphasizing the importance of the inflow of institutional money into new directions in the real estate market.

“This regulation creates a new real estate sector in Turkey where institutional capital can develop,” he noted. Yıldırım also pointed out that other real estate-related SPK instruments, such as asset-backed securities and lease certificates, have paved the way for more transparent and institutionalized investments in this sector.

Yıldırım also emphasized the role of insurance companies and individual pension companies in real estate development, following the example of global practices.

“The regulation will contribute to a more sustainable and manageable housing supply,” he said, emphasizing the urgent need to focus on urban transformation given Turkey’s history of natural disasters.

Selman Özgün, head of Helmann Holding, praised this investment as a major impetus for both the supply of new housing and the transformation of cities, which he considered a top priority for Türkiye.

“The banking system in Turkey is well developed, but there is a lack of alternative sources of financing. This regulation will fill this gap,” Özgün noted.

He predicts a significant increase in the number of real estate investment funds, which will enable smaller investors to participate in projects and accelerate the transformation of cities.

Faruk Akbal, CEO of Fuzul Group, described the regulation as a lifesaver for the sector, especially if it includes provisions for low-income homebuyers.

“We plan to create our own fund to support regulations that will have a positive impact on counteracting rising housing prices and facilitate access to housing,” Akbal said.

Didem Güneş, CEO of EgeYapı Real Estate Investment Trust (REIT), noted that the revitalization of real estate investment funds would contribute to various areas, from the transformation of urban areas to social housing and solving the problem of supply shortages.

“This will also play a role in correcting the imbalance in housing prices,” she added.