Real estate investment company

Turkey is in immediate need of infrastructure and housing investment, due to its high-speed urbanization and ongoing demographic growth. Real estate investment in Turkey is considered feasible and profitable because not only there is a demand for housing and infrastructure projects, but also because it provides to its investor low volatility and a hedge against high inflation.Real estate investor might choose between direct and indirect models of real estate investment. Indirect real estate investment means investing in securities issued by mutual funds and real estate investment companies, which invest directly on real estate titles and projects. By investing in real estate investment company stocks, asset-backed securities and other products issued by the same, one would be investing indirectly in real estate. The goal of this study, titled ?Real Estate Investment Company?, is to analyze from a legal perspective, this institutional investor, which provides small investors operating on capital markets in Turkey, with an opportunity to invest indirectly in real estate.Real estate investment companies established in Turkey are regulated under the Communiqué on Principles Regarding Real Estate Investment Companies (Serial: VI, No: 11), which is grounded on articles 32, 35 and 36 of Capital Markets Law, hence the study mostly deals with the provisions of this Communiqué. The study also deals with higher legal norms such as codes and bills. Those legal sources (mainly the Capital Markets Law, the Code of Commerce, the Civil Code, the Code of Obligations, the Foreign Direct Investment Code) are not examined thoroughly but to the extent that their provisions regulate any aspect of real estate investment companies. Although among those codes and bills, the one that includes most provisions related to real estate investment companies is the Capital Markets Law, it does not contain detailed stipulations, because it is in the form of a ?framework law?. Detailed provisions can only be found in communiqués that Capital Markets Board has issued. Therefore, the study thoroughly examines those board communiqués as the relevant legal ground. The most used communiqués in the study are; the Communiqué on Principles Regarding Registration with the Capital Markets Board and Sale of Shares (Serial: I, No: 26), the Communiqué on Principles Regarding Asset Finance Funds And Asset Backed Securities (Serial: III, No: 35), the Communiqué on Principles Regarding Registration Of Real Estate Certificates with The Board (Serial: III, No: 19) and the Communiqué on Principles Regarding Portfolio Management Activities And Institutions Which Are Authorized To Provide Portfolio Management Services (Serial: V, No: 59).Since the subject of the study is a legal analysis of real estate investment companies, Turkish legislation, as set above, is thoroughly used, along with Turkish legal writings and Turkish case law. It is also taken into consideration that the very first modern models of real estate investment companies and capital markets appeared in the United States of America. Therefore, the American legislations and legal writings are not set aside in the study.After the first successful examples of company based real estate investment model in the United States of America, European countries have adopted this investment model. Taking into account the membership candidacy of Turkey to the European Union and the proximity of Turkish law system to the continental European system, European Union and member states? (together with Helvetic Confederation) legislation and legal writings were also considered.American, European Union and European state legislation on real estate investment companies are compared with the Turkish legislation in the study, whenever an amendment or even an addendum is deemed necessary in Turkey. Even though comparative law methods were used, the thesis still should not be considered as a proper comparative law study, which should have extended the comparative work on foreign law to a higher level. This study should instead be seen as a Turkish law study, where comparative law methods are used, when a de lege feranda suggestion is needed.The legal analysis of real estate investment company has two standpoints. The first one approaches the issue with the purpose of interpreting the establishment and the dissolution processes of the legal entity. In other words, the first chapter concerns incorporation requirements and stages of the company and dissolution causes and stages of the same. On the other hand, the second standpoint of the legal analysis has as objective to examine the legal acts of the real estate investment company. This chapter focuses mainly on the company?s activities related to investment and financial transactions.In this bilateral analysis, each chapter relates to one major discipline of private law. The first chapter goes in for company and capital markets law, while exploring the incorporation and dissolution of the company. On the other hand, the second chapter is governed mostly by civil law and contract law, because it focuses on the legal acts of a legal entity and their consequences.The first chapter consists of four sub-sections, which concern determination of the applicable norms, incorporation of real estate investment company, mandatory formalities post-incorporation and dissolution and liquidation of real estate investment company. The first chapter, dedicated to the judicial regimen of the real estate company, commences with the question of determination of the applicable norms. Once applicable norms laid out in the study, incorporation stages of legal personality of real estate company are examined. Real estate investment company is not deemed fully established immediately after incorporation, unless it attends to further formalities. Following its incorporation, the real estate investment company is obliged to attend some formalities, namely initial public offering and development of a real estate portfolio. Should it fail to do so in a determined period, it will lose its authority to act as a real estate investment company, which is why the mandatory post-incorporation formalities are thoroughly studied in the third sub-section of the first chapter. At last, the fourth sub-section of the first chapter deals with dissolution and liquidation of real estate investment company.In the first sub-section of the first chapter, it is analyzed step by step, the path to determine the applicable norms in relation to the judicial regimen and legal acts of real estate investment company. For this analysis, the main principles for determination of applicable norms set out in the first articles of the Civil and the Commercial Codes are used. In fact, in a monography, such as this study, determination of applicable norms may not have occupied such a large space, if the provisions of the communiqué were actually incorporated into a code or an act of bill. However, most of the mandatory provisions regarding the judicial regimen and legal acts of a real estate investment company are currently set out in a communiqué, rather than a code or act of bill. This legislation anomaly causes major problems when it comes to determine applicable norms. In order to overcome this problem, it was necessary to study in the first sub-section of the first chapter, the limits of the Capital Markets Board?s authority of regulation and the limits of the Communiqué vis-à-vis the hierarchy of norms.The second sub-section of the first chapter concerns the requirements and stages for the incorporation of real estate investment company, until it officially is registered with the Trade Registry. Real estate investment company is incorporated in the form of a joint-stock company. Thus, the provisions regarding the establishment of an ordinary joint-stock company must be complied with during the establishment of a real estate investment company. However, studying the establishment of joint-stock companies is not among the objectives of this thesis and in order to avoid such analysis irrelevant to the scope of the research, the study concentrates on provisions peculiar to the establishment of a real estate investment company. In this context, first the criteria that the founding shareholders of a real estate investment company, which will draft its articles of association, need to meet are examined. In other words, it is first dealt with the writers of the articles of association, which is followed by the analysis of the articles of association of real estate investment company. Again, solely the aspects specific to a real estate investment company are dealt with. Namely, business name, purpose of real estate investment company, its minimum capital and the possibility of making capital contributions in kind to the company are studied. Since real estate investment company is required to adopt registered capital system, it needs to obtain the permission in relation thereto, from the Capital Markets Board, in addition to the permission for its incorporation. Together with the permissions obtained from the Capital Markets Board, an establishment permission from the Ministry of Industry and Commerce needs to be acquired as well. Real estate investment company can be registered with the Trade Registry only after acquiring those permissions and acts.Real estate investment company must attend to further formalities, in order to be entitled to act in capacity of real estate investment company. The first of these formalities is to acquire a real estate portfolio management license. The license is granted by the Capital Markets Board. Real estate investment company can generate its commercial income only through its real estate portfolio operations. All other commercial activities are forbidden in the Communiqué for real estate investment company. It is therefore a question of survival whether the company acquires the portfolio management license or not. The Capital Markets Board evaluates portfolio management license application together with public offering permit application. In order to be able to act as a real estate investment company, it must go public for minimum 49% of its subscribed capital. All stocks offered publicly must be listed on the stock market. Considering those mandatory provisions, application for a portfolio management license and public offering issues are studied in the third section of the first chapter.Following the review of the judicial regimen in relation to the incorporation of a company and compliance with the requirements to act as a real estate investment company, one should also examine the dissolution of a real estate investment company. Therefore, in the fourth sub-section of the first chapter, dissolution and liquidation of real estate investment company is analyzed. Just like in the second sub-section of the first chapter, in this chapter, only provisions peculiar to real estate investment company are dealt with. Just because real estate investment company is established as a joint-stock company, every dissolution cause for the latter is de jura a dissolution cause for the former. The study only examines dissolution causes peculiar to real estate investment company. Regarding liquidation of the company, again only liquidation provisions peculiar to real estate investment company, namely gradual liquidation are dealt with.After studying the judicial regimen of real estate investment company in the first chapter, legal acts, essentially portfolio management acts are examined in the second chapter. The only authorized lucrative act for real estate investment company is, as explained above, portfolio management transactions. Therefore, under the first sub-section of the second chapter, general principles of portfolio management are studied and in the following sub-section, portfolio management transactions are analyzed. In the last two sub-sections of the second chapter, capital market transactions of real estate investment company and their consequences are examined. The third sub-section is reserved to capital market transactions and the fourth sub-section deals with the issue of Capital Markets Board control over real estate investment company.The first sub-section of the second chapter focuses on the general principles of portfolio management. Various general principles governing real estate portfolio management of the company are set out on an international level. International general principles are examined first, following with the study of the principles set forth by the Communiqué of Real Estate Investment Company.The main operations of real estate investment company are transactions made with the purpose of managing its real estate portfolio, in accordance with the general principles of portfolio management. Portfolio management operations of the company are studied under the second sub-section of the second chapter. Real estate portfolio management comprises two essential branches of investment, namely plain real estate investment and real estate project investment. On the subject of plain real estate investment, all sorts of legal acts authorized by the Communiqué, which provide to the company a real and personal right, are dealt with. The subject of real estate project investment is divided into two parts; properties on which it is authorized to develop a real estate project and the legal structures that the company can choose, so that the project would be undertaken by a construction company.Among authorized operations of real estate investment company examined in the second chapter, the capital market transactions are studied in the third sub-section of the chapter. The activities of real estate investment company in capital markets have been considered in two sub-sections titled investment in financial market products and financing. While examining capital market investments, asset-backed securities took a place of importance, taking into consideration the main operation field of a real estate investment company. Similarly, while studying financing transactions on capital market, real estate certificates and public offerings of asset backed securities have been dealt with.Because real estate investment company is a capital market institution, the fourth sub-section of the second chapter is consecrated to the Capital Markets Board controls and the tax advantages granted to the company. In relation to the control of the Capital Markets Board, before all, the principles governing this control is explained. The said principles have been studied taking into consideration the principles applied to the Capital Markets Board and the principles to be respected by the company, in its activities aiming to facilitate the control. Regarding the control of the Capital Markets Board, administrative and financial controls over the real estate investment company have been dealt with, as well as the sanctions that may be imposed on the same, as consequence of the controls. Real estate investment company is not only subject to the control of the Capital Markets Board, but also to a comprehensive tax control. Real estate investment company is granted tax advantages in Turkey, just like its European and American counterparts. Thus, it is studied hereunder why real estate investment companies are granted tax advantages in Turkey and abroad. In light of these reasons, tax advantages granted in Turkey, as well as the fields where the company shares the same tax liabilities as other companies, where they should have been granted advantages, are examined.At the conclusion section of the study, conclusions drawn under the sections summarized above and suggestions are summarized. Following the summary, a global evaluation of the subject is presented and the situation of real estate investment company in Turkey in comparison with its foreign counterparts is illustrated, in accordance with the current legislation and practice. Taking into consideration this global evaluation, guiding observations and suggestions are presented to future researchers.