Housing, Land and Logistics are the Most Attractive Areas for Investment in REIFs
In Real Estate Investment Funds (REIF), which is a popular alternative investment instrument in the real estate sector, the rising portfolio areas are seen as housing, land and logistics. Especially with the new stock to come in housing, 30% to 40% returns are expected. We talked about the developments in the sector with Alim Telci, Turkish Capital Markets Association Board Member.
Real Estate Investment Funds (REIF) are a popular alternative investment instrument in the real estate industry. These funds, which are a capital market instrument established and managed by real estate portfolio management companies authorized by the Capital Markets Board, can invest in land, plot, residence, office, shopping center, hotel, logistics center, warehouse, park, hospital and any other similar real estate in order to generate trading profit or rental income. Investors turn to funds with strategies that fit their expectations. By creating a fund portfolio with the money collected in the fund, residences and office units are purchased from the specified projects.
By the end of 2020, the total size of 47 Real Estate Investment Funds (REIF) reached 8.3 billion, 38 Venture Capital Investment Funds (VCIF) reached a size of 3.1 billion. Compared to the previous quarter, REF grew by 21.3% and VCIF by 22.6%.
We have spoken to one of the first real estate asset management companies Re-Pie General Manager Alim Telci on REIF which has a high development potential due to the positive progress of the economy and real estate market and which continues to be partnered by Saudi and Gulf of origin investors.
Why should investors invest in REIFs today?
In our research on today’s housing stock inventory, we concluded that if housing sales continue at the current pace, the existing housing stock will be enough for us until September 2021. Since any real estate stock that may come next will create a new market where costs and therefore prices rise, the investor can be promised returns that can range from 30% to 40% as an estimate. This will be clear from the second half of 2021. Our first important expectation is that the attraction to invest in real estate will increase in this way.
For an investor coming to Turkey to make real estate investments, REIF is a very attractive investment instrument. For example, when you cannot even buy a 10 square meter place for 50 thousand liras, when you invest the same amount in the real estate fund, it can bring you money as much as the value increase of those big projects in the portfolio. In this aspect, it has the advantage of economy of scale. On the other hand, in this user-friendly instrument with ease of transaction / operation, there is a professional institution that sorts options on behalf of the investor, compares the risk-return advantage, manages the investment on behalf of the investor in all respects and is responsible for all processes. In addition, issues such as including finished products in portfolios and tax exemptions for domestic and foreign investors constitute the most advantageous aspects of the system.
Which segments will be popular in REIF portfolios this year?
We expect a very serious increase in the yield in the housing sector within 1-2 years. Investment in the land where the city plans expand in Turkey always have a return above inflation. In addition to this, there is an added value increase depending on the progress of the zoning plans. Therefore, these two dynamics in the land make this area more attractive in return. Istanbul and its environs are the logistics centers of Turkey and the Middle East. Here, a logistics investment brings the investor to the long term. Logistics is the most attractive area in the pandemic, whose price does not decrease. We see it beneficial for land and offices with good tenants to be included in the portfolio.
How to increase the attractiveness of REIF in Turkey to investors?
As a Turkey Capital Markets board member, I would say that we have a study on this issue. We have a legislation in the standard fund section in APS, which is Automatic Participation Systems. The legislation covers the obligation of these funds to be filled at least 10% with real estate venture capital and investment instruments by Turkey Wealth Fund. The largest investments from pension funds were already related to investments from this position. We want to remove this by APS and shift it to the Private Pension System (PPS) side. In other words, our aim is to ensure that Private Pension System (PPS) funds invest in real estate funds. Then, the doubling of the current size of BES funds means that REIF and VCIF are offered an extra investment opportunity of around 2.9 billion Lira in total. We conducted a study on this subject and got it accepted by the Capital Markets Association Board of Directors. We will write it down and send it to the Treasury and CMB.
What kind of path should an international investor follow to invest in REIFs?
Fund shares can be bought by investors who are called “qualified investors” . The prerequisite of being a qualified investor is that investors have 1 million TL cash or asset at the bank. The amount of investing in REIFs can be 1,000 TL or 10 thousand TL.
Investors need to contact the portfolio management companies that have established REIFs and examine and compare their portfolios. At this point, investors should research the market and the segments they choose.
In the last stage, when the investor shakes hands with the portfolio company and decides to buy the fund, he opens an account in one of the big banks directed by the portfolio company and deposits his money there. A custody account reserved in a special branch of the relevant bank is issued on behalf of the investor.
The portfolio company also has a fund account in another custody branch. The fund has participation shares in this account. The investor sends the money in his account to the fund account at any time, and the portfolio company in return sends the participation shares in the fund account to the investor account. When the investor enters his account, he can clearly see how much share he has from which fund.