I overview of the market

Real estate investment trusts (REITs) were first introduced to the Turkish market in 1995. However, in the absence of relevant legislation, they did not receive much attention until the early 2000s. Following the economic crisis in 2002, REITs began to attract interest from both domestic and foreign investors.

As of today, there are currently 33 REITs established in Turkey, and shares for 31 of these are open to the public. Foreign investors have also invested in these REITs' shares.

However, despite the foregoing, Turkey still is a traditional real estate market, and investors prefer direct investment in the property itself instead of capital market instruments. Accordingly, investments through REITs do not yet constitute a significant portion of Turkish real estate investments.

The government is taking measures to encourage and attract foreign investment especially in the real property sector. Pursuant to very recent legislation, any foreign person who purchases a real property with a value of at least US$1 million and undertakes not to sell the property within three years (this undertaking is registered in the land registry) is granted Turkish citizenship.


i M&A transactions

Most of the transactions in the real estate sector are kept confidential and the deal values and structure are generally not publicly available.

According to publicly available information, a total of six transactions were concluded in 2016, with a total value of US$336 million.

The most significant of these transactions were the purchase of 5.25 per cent of the shares in Rönesans Holding by IFC for a total fee of US$215 million, and the purchase of all the shares in Alem Gayrimenkul by Ömer Hüseyin Alfadran for a total fee of US$70 million.

The number of real estate transactions slightly decreased in 2017; however, the total value was nearly doubled. In 2017, a total of five transactions were concluded, with a total value of US$650 million.

In 2017, the highest volume transactions in the real estate sector were the acquisition of İçerenköy Shopping Mall for US$320 million and the acquisition of Metropol İstanbul Shopping Mall for US$301.6 million by the Kefeli-Dekorsel Joint Venture. The acquisition of a 50 per cent stake in Adana Optimum Shopping Mall by Rönesans Gayrimenkul and the acquisition of İnegöl Shopping Mall by FIBA Commercial Properties were other noteworthy transactions in the sector although the deal values were not disclosed.2

In 2018, there were five real estate transactions with a total value of US$274 million. The most significant transaction was the purchase of Carrefoursa Maltepe by Bakırköy Gayrimenkul for a total fee of US$193 million.3

ii Private equity transactions

While private equity firms continue to invest in the real estate sector, it is not their main point of interest, as they prefer to focus on the information technology and energy sectors.

As mentioned above, most of the deals are kept confidential and the deal values and structures are not publicly available.


i Publicly traded REITs and REOCs – structure and role in the market

Shares of most of the REITs (31 out of 33) are publicly traded in Turkey.

Real estate investor companies, including but not limited to REITs, mainly focus on commercial properties such as shopping malls, high-street shops, hotels, tourist facilities, warehouses and industrial properties, as well as residential properties.

Commercial and industrial real estate investments seek either an exit within a couple of years or an ongoing rental income.

ii Real estate PE firms – footprint and structure

Similarly to REITs and REOCs, PE firms mainly focus on commercial properties such as shopping malls, high-street shops, hotels, tourist facilities, warehouses and industrial properties, as well as residential properties.

Commercial and industrial real estate investments seek either an exit within a couple of years or an ongoing rental income.


i Legal frameworks and deal structures

The main piece of legislation regulating REITs is the Communiqué on Real Estate Investment Trusts (III-48.1) published in the Official Gazette No. 28660 dated 28 May 2013 (the Communiqué).

The Communiqué provides two main definitions with respect to REITs; namely infrastructure companies (InCos) and REITs. InCos are defined as a kind of REIT; however, there are certain additional requirements with respect to InCos, as explained in detail below.

The Communiqué defines InCos as capital companies or foreign companies, companies that will carry out infrastructure investment services in accordance with other public–private partnerships or privatisation models as determined under the legislation, or companies established to carry out infrastructure investments and services that are carried out by public authorities, social security institutions, local administrations and state-owned enterprises.

Infrastructure investments and services are also defined as agriculture, quenching, mining, manufacturing, energy, transportation, communication, information technologies, tourism, residential, cultural, urban and rural infrastructure, municipality services, urban regeneration, environmental, research and development, education, health, justice, security, general administrative infrastructure and similar investments and services and projects regarding these investments and services.

REITs are defined as capital market institutions established to operate a portfolio consisting of real properties, real property projects, real property rights, infrastructure investments and services, capital market instruments, bank deposits and other assets and rights to be determined by the Capital Markets Board.

InCos should be established in such a way as to carry out only infrastructure investments and services; and they cannot invest in real properties, real property projects and real property-related rights. Similarly, REITs other than InCos also cannot invest in infrastructure investments and services other than those carried out in relation to their real property or real property projects and are of an incidental nature.

REITs may also be incorporated to invest in specific projects, real property or infrastructure investments and services, or to carry out activities in a specific field. In such cases, 75 per cent of the assets of the REIT should consist of investments in that specific field, and the company name should include a reference to that activity, project, real property or infrastructure investment and service.

InCos' articles of association should also explicitly state that a minimum of 75 per cent of the assets of the InCo should consist of infrastructure investments and services.

The minimum capital requirement for a REIT is 30 million Turkish lira. The minimum capital requirement for an InCo is 100 million Turkish lira, without prejudice to exceptions where at least one of the shareholders is a public entity and that shareholder holds at least 20 per cent of the share capital.

The natural persons and legal entities of the REITs' incorporating shareholders:

  1. should not be bankrupt or have been declared bankrupt or have had a bankruptcy proceeding postponed;
  2. should not have caused the operating licence of a company to be annulled by the Capital Markets Board;
  3. should not have been convicted of any crime listed in the Capital Markets Law;
  4. should not have been sentenced to jail for a period of more than five years for a deliberate crime or have been convicted of crimes against the security of the state, crimes against the constitutional system, crimes of misappropriation, bribery and extortion, burglary, fraud, etc.;
  5. should provide the required resources for the establishment of the REIT from their own commercial, industrial and other legal activities, free from any collusion, and should have the financial capability to meet the undertaken capital amount;
  6. should have the required honesty and reputation;
  7. should not have any outstanding tax debt; and
  8. should not have been convicted of any crime listed in the Law on the Prevention of the Financing of Terrorism.

Only real properties that are not subject to any mortgage or any other encumbrances that may directly and significantly affect the value of the property may be accepted as capital in kind. Any increase in capital in kind is subject to a general assembly decision, and shares issued in relation to such capital in kind may also be traded.

REITs must apply to the Capital Markets Board for approval for a public offering of their shares corresponding to at least 25 per cent of the REIT's issued capital, and must maintain this situation following the public offering. Failure to comply with this requirement may result in cancellation of the company's entitlement to act as a REIT.

If an investment has been made in a specific infrastructure company or project before the operation period or the ratio of the investments in infrastructure companies or projects in the operation period is less than 60 per cent of the total assets of the InCo, shares of the InCo may only be sold to 'qualified investors', who are deemed to be professional customers (i.e., customers who may take their own investment decisions and have the capability and experience to assess the risks related to their investments).

In principle, no privileged shares may be issued by REITs except for privileged shares that confer a right to nominate a candidate for the board of directors. However, following the public offer, no privileges including but not limited to nominating a candidate for the board of directors may be created. If the shares of the InCo are offered to qualified investors, this restriction shall not apply on the condition that it is provided under the articles of association and an exit right is provided in accordance with the legislation.

The shares of a REIT may either be issued as bearer shares or registered shares.

Any transfer of privileged shares that may result in control of the management is subject to the approval of the Capital Markets Board.

The members of the board of directors should have, in addition to the requirements for the incorporating shareholders mentioned above, at least three years of experience in sectors such as real estate, infrastructure, law, construction, banking and finance. Experience only in the sale and purchase of real estate shall not be deemed sufficient experience. Furthermore, the majority of the members of the board of directors should be graduates of four-year university courses.

Any decision by the board of directors regarding the following should be announced and made public:

  1. transactions between the REIT and:
    • shareholders having at least 20 per cent of the shares or voting rights in the same ratio;
    • shareholders having a privileged share to nominate a candidate for the board of directors;
    • companies in which the parties mentioned in the first two points above have at least 20 per cent of the shares or voting rights in the same ratio;
    • affiliates of the REIT;
    • companies that provide management services to the REIT;
    • companies that provide portfolio services to the REIT;
    • companies that provide consultancy services to the REIT;
    • contractors that provide construction services to the REIT;
    • other shareholders of an ordinary partnership in which the REIT is a shareholder; and
    • other persons affiliated to the REIT;
  2. sale, purchase, lease or rental of an asset by the REIT;
  3. determination of companies that will carry out marketing of the assets in the portfolio of the REIT;
  4. establishment of a credit relationship;
  5. common investments; determination of companies that will provide management, project development, control or contractor or portfolio management services;
  6. any purchase transaction with the persons affiliated with the REIT; and
  7. although not mentioned above, decisions that may benefit the persons determined under (a) above.

The projects that will be carried out by REITs or in which REITs will make an investment should have all necessary licences and other legal documentation required for the commencement of the construction, and all the projects should have been approved.

REITs may invest in real properties in foreign countries provided that the ownership is registered on the REITs' behalf. However, InCos may not invest in infrastructure projects abroad.

REITs are not allowed in any way to engage in project construction works, to employ personnel or procure equipment for such activities. REITs are also not allowed to commercially operate hotels, hospitals, shopping centres, business centres, commercial parks, commercial warehouses, residential sites, supermarkets, etc.

Furthermore, REITs are not allowed to provide project development, project control, financial feasibility or follow-up legal procedure services to third parties.

REITs may not give credits or debits that do not arise from the sale or purchase of goods.

Finally, REITs are not allowed to engage on a continuing basis in the short-term sale and purchase of real properties.

The ratio of the land acquired within the past five years on which no project has yet been developed shall not exceed 20 per cent of the total assets.

All construction and construction-related works such as drilling, renovation and restitution should be carried out for REITs by contractors in accordance with the agreement to be executed by and between the REIT and the contractor.

REITs are required to carry out an independent valuations through valuation companies in relation to obtaining new portfolios, sale and lease of assets in the portfolio, rental of real property to be leased out to third parties, etc.

ii Acquisition agreement terms

Most real estate transactions are concluded as share transfers rather than as asset transfers. This is mainly because of tax implications and land registry fees.

A total of 4 per cent of the sale price (2 per cent for both the seller and the purchaser) is required to be paid to the land registry as a land registry fee. This amount has been reduced to 3 per cent until the end of 31 December 2019 to encourage people to declare the actual sale price and to increase land registry fee income; however, whether this has been successful is questionable.

Apart from the land registry fee, income tax for natural persons and corporate tax for legal entities shall apply in the event that the property is sold within five years in the case of natural persons, and within two years for legal entities. Legal entities engaged in the sale and purchase of real estate are exempted from this exception.

Accordingly, most of the investors tend to engage in share transfers rather than asset transfers. The companies generally establish new companies to purchase properties, or demerge their companies by grouping one or more of the properties they intend to sell.

A share purchase agreement is executed to conclude a share transfer. Typical representations and warranties are included in the share purchase agreement. In addition to typical representations and warranties, representations and warranties regarding full and undisputed ownership, compliance with zoning plans, having all required licences for the construction and utilisation of the property (and the actual status of the property being in compliance with the licences even if the property has all the required licences) should also be included in the agreement, and non-compliance with these representations and warranties should be sanctioned with penalty clauses providing a sufficient figure to compensate all possible losses and pay any damages arising.

iii Hostile transactions

According to publicly available information, no hostile transactions have occurred in Turkey.

iv Financing considerations

Real estate transactions in Turkey are generally financed with equity capital, although bank financing is a popular alternative. The banks also offer mortgages to natural persons as buyers; however, the terms and interest rates do not favour the investor when compared with similar mortgages provided in other European countries or the United States.

Other financing methods, including but not limited to Islamic financing, are also gaining popularity.

v Tax considerations

In the case of a property transfer, both the buyer and the seller are required to pay 2 per cent (1.5 per cent until 31 December 2019) of the transaction value as a land registry fee. Furthermore, a fee of approximately US$200 for each transaction should also be paid into the revolving fund for land registry services.

If a promise-to-sell agreement is executed before the transfer of the ownership of the property, the agreement is subject to a stamp tax of 0.948 per cent on the highest amount in the agreement. The promise-to-sell agreement must be registered in the land registry to be effective against third parties, and the registration is also subject to a land registry fee of 0.683 per cent of the purchase value. However, this amount cannot exceed twice the amount of the real property tax value of the property.

In the case of a share purchase agreement, a stamp tax of 0.948 per cent should be paid on the highest amount in the agreement.

If a real property is sold by a natural person within five years of the acquisition date, the sale will be subject to income tax, calculated on the difference between the purchase and sale amounts.

Similarly, if a real property is sold by a legal entity within two years of the acquisition date, the sale will be subject to corporate tax, calculated on the difference between the purchase and sale amounts.

REITs have certain tax advantages as well in that they are exempted from corporate tax liability. Furthermore, the withholding tax ratio applicable to the revenues of a REIT, whether distributed or not, is determined as zero per cent.

vi Cross-border complications and solutions

Only foreign natural persons and Turkish capital companies with foreign shareholders are allowed to obtain the ownership of a real property or rights in rem pertaining to a real property.

Foreign capital companies established outside Turkey are not allowed to purchase real property or rights in rem pertaining to a real property in Turkey.

Foreign capital companies established in Turkey in which foreign shareholders have at least 50 per cent of the shares or have the right to appoint or dismiss the majority of the directors should make an application to and obtain the approval of the governorship where the target real property is located. The governorship obtains the opinion of the relevant institutions, such as the General Staff (the military) and the police force, to determine whether the target real property is located within a military or private security zone and whether the transaction may create a risk in terms of national security.

If the company falls within the scope of this requirement because of a share transfer, it should inform the Ministry of Economy. In such cases, an evaluation is made by the relevant authorities without there being any requirement to make an application. If the authorities deem that a risk to national security would be created, they inform the company and request that the real property be liquidated within, at most, six months. If the company fails to comply with this requirement, the real property is liquidated by the Ministry of Finance.


In Turkey, the operations of properties are generally carried out by operation or management companies. Accordingly, real estate companies either outsource the management or operation of the property to a third-party management company, or establish a dedicated management or operation company.

Because of reputation risk and to protect the value of newly constructed projects, property companies prefer to carry out the management of the project through a management company established by the property company itself.

The REITs are also required by legislation to use operation companies, as they may not be engaged in any way in the commercial operation of hotels, hospitals, shopping centres, business centres, commercial parks, commercial warehouses, residential sites or supermarkets.


Urban regeneration projects are on a short break due to economical conditions, however Turkey (especially Istanbul, Ankara and Izmir) continues to be a huge construction site. As the number of urban regeneration projects increases, there is a parallel increase in the number of problems and disputes arising from these projects.

Major infrastructure projects such as the Marmaray project (a tube line between Asia and Europe under the Bosphorus), the Yavuz Sultan Selim Bridge (or the Third Bosphorus Bridge), the Osman Gazi Bridge (a bridge between Istanbul and Yalova), the Eurasia Tunnel (a tunnel between Asia and Europe under the Bosphorus) and Sabuncubeli Tunnels (tunnels between the cities of Manisa and Izmir) and the new Istanbul Airport have been completed in the recent past, and other important projects such as the Istanbul–Izmir highway, Kanal Istanbul (a second channel between Black Sea and Marmara Sea in order to reduce transit vessel traffic in the Bosphorus) and the Çanakkale 1915 bridge are under way.

PPP projects are also very popular, especially in the health sector – city hospitals are being constructed in nearly every city in Turkey.

While not directly related to the real estate sector, energy projects, especially renewable energy projects, are also a very hot topic, and these projects involve real estate-related issues, and problems as well; these issues are likely to continue in the near future.


1 İnanç Akalın is managing partner at Akalın Attorneys at Law.

2 Ernst & Young, 'Mergers and Acquisitions Report Turkey 2017'.

3 Ernst & Young, 'Mergers and Acquisitions Report Turkey 2018'.