New regulation to rev up Türkiye's urban renewal, housing accessibility
A view of the Kadıköy district, which is at risk in case of earthquake, Istanbul, Türkiye, March 20, 2023. (EPA Photo)


Türkiye is close to completing a framework of a new regulation that is envisaged to serve as an instrument to increase urban transformation financing and housing supply, according to Treasury and Finance Minister Mehmet Şimşek.

The regulation is sought to enable real estate investment funds to invest directly in property development projects, Şimşek said Sunday.

"These funds' portfolios will be adjusted and restructured accordingly. With the increase in housing supply, upward market pressure on housing prices will alleviate and make housing more accessible to all segments of society."

Led by the Capital Markets Board (SPK), the relevant studies on the establishment of the Project Real Estate Investment Funds (Project REIF) have reached the final stage, the minister told Anadolu Agency (AA).

High prices and rising interest rates propelled house sales in Türkiye to their lowest level in nine years in 2023. Market activity is not expected to rise until at least the last quarter of the year when inflation is anticipated to fall sharply amid a tight monetary stance.

Şimşek pointed out that previously, real estate investment funds could not invest in such projects or undertake construction work themselves.

"With the SPK's regulation, these restrictions will be lifted. The project real estate investment funds will be able to include land and real estate projects in their portfolios. These funds will be distinct from existing real estate investment funds as they will carry the 'project' designation in their titles," he explained.

The new regulation also envisages a collateral mechanism to mitigate project-related risks for investors. This measure will secure the fund's rights arising from revenue-sharing agreements, said Şimşek.

"Additionally, investors will have the right to exit the fund in case of changes that could impact their investment decisions, preventing potential investor grievances," he added.

Investors will have multiple exit strategies, including selling or renting the completed real estate or taking possession of the property itself.

Türkiye has 184 real estate investment funds with approved issuance certificates by the SPK. Some 149 funds have established portfolios, totaling approximately TL 82.7 billion ($2.57 billion).

"We expect the number of these funds to increase with the new regulation," said Şimşek.

"Thanks to the solid collateral-based structure of the funds, real estate project production will be able to be implemented safely. Investors will be able to own a house in this trusting environment by evaluating their small savings with the logic of the cooperative system."

Production boost, price stabilization

Stakeholders hope that the regulation will ease financial bottlenecks, boost 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 draft for some time.

"Given the high interest rates, financing has been challenging. This regulation will open new avenues for us," Keçeli said. He emphasized that supporting real estate investment funds is crucial for new projects, drawing comparisons to successful implementations in the U.S. and U.K.

The tightening drive since last June took the central bank's benchmark policy rate from 8.5% to 50% as authorities sought to tame inflation, which currently runs at nearly 70%. It is seen peaking at as high as 75% in May before cooling as of the second half of the year.

Officials and the central bank anticipate it will end the year at 38%.

Last week, the central bank kept its one-week repo rate unchanged for a second consecutive month, as expected, but remained wary of inflation risks.

The government has also ramped up efforts to add even further pace to urban transformation after last year's devastating earthquakes that ripped through Türkiye's southeastern region and leveled hundreds of thousands of buildings.

Keçeli highlighted the significant demand for urban transformation, where financing has been a major hurdle.

"This regulation will provide financing for both homeowners looking to renovate and developers. It will be a robust financing model, offering low-cost finance and positively affecting housing production and sale prices," he added.

Lifeline for urban transformation

Bekir Yener Yıldırım, chair of Neo Portfolio, echoed these sentiments, underscoring the importance of institutional money flowing into new real estate avenues.

"This regulation creates a new real estate sector in Türkiye where institutional capital can thrive," he noted. Yıldırım also pointed out that SPK's other real estate-related instruments, such as asset-backed securities and rental certificates, have paved the way for more transparent and institutionalized investments in the sector.

Yıldırım also emphasized the role of insurance and individual retirement companies in real estate development, akin to global practices.

"The regulation will contribute to a more sustainable and manageable housing supply," he stated, stressing the urgent need to focus on urban transformation given Türkiye's history with natural disasters.

Selman Özgün, head of Helmann Holding, praised the development as a major boost for both new housing supply and urban transformation, which he deemed a top priority for Türkiye.

"The banking system in Türkiye is well-developed, but alternative financing sources are lacking. This regulation will address that gap," Özgün remarked.

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

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

"We plan to establish our own fund, supporting regulations that will have a positive impact against rising housing prices and facilitate access to housing," Akbal said.

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

"This will also play a role in correcting imbalances in housing prices," she added.