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4th COMCEC CAPITAL MARKETS REGULATORS FORUM MEETING
Erkan OZGUCCapital Markets Board of Turkey
Real Estate Securities in Turkey
19 November 2015
Overview
1)Real Estate Investment Trusts (REITs)
2)SUKUK
3)Other Real Estate Related Instruments
• Real Estate Investment Funds (REIFs)
• Sukuk Participation Funds
• Real Estate Certficates
2
1. Real Estate Investment Trusts (REITs)
• REIT is a type of investment trust/investment company,which mainly invests in income-producing real estatessuch as offices, flats, shopping malls, car parks, warehousesetc.
• REITs offer investors an access to huge propertyinvestments by selling a fraction of pool of property.
• Investors benefit from their investments in REITs throughthe dividends and the increase share/unit price.
• Moreover, investors can easily liquidate their investmentsby selling their shares in the stock exchange.
3
1. Real Estate Investment Trusts (REITs)
• REITs, globally:
REITs globally has a total market capitalization of USD 2.23 trillion.
• Market capitalisation of the REITs, by regions (USD billion) (*)
(*) Source: Calculated based on the data given at Global REIT Survey 2015, EPRA Reporting.
4
927
624
482
136
58
-
100
200
300
400
500
600
700
800
900
1.000
United States Asia Pacific Europe Other Americas Africa
1. Real Estate Investment Trusts (REITs)
REITs, globally:
• Market capitalisation of the REITs, market share by regions (%) (*)
(*) Calculated based on the data given at Global REIT Survey 2015, EPRA Reporting.
5
United States42%
Asia Pacific28%
Europe22%
Other Americas6%
Africa2%
United States
Asia Pacific
Europe
Other Americas
Africa
1. Real Estate Investment Trusts (REITs)
Islamic REITs:
• Islamic REITs differ from conventional REITs mainly due to therequirement to operate in line with the Shariah rules.
• Rentals must be in line with Shariah rules, hence, tenants mustoperate permissible activities according to the Shariah rules.
• Manufacture/sale of alcoholic drinks, tobacco products, non-halalfoods, gambling activities and conventional banking/insuranceservices are some examples to non-permissible activities.
• In Islamic REIT, there is a Shariah Committee or a Shariah Advisorthat assesses that whether the REIT’s operations are Shariahcompliant or not.
6
1. Real Estate Investment Trusts (REITs)
REITs Regulation in Turkey: the first regulation was in 1998; the existingcommunique was issued in 2013.
• In Turkey, at present all the REITs outstanding are in the first type, namely, they are the REITs that mainly invest in real estates, real estate projects and real estate-based rights.
• There has not been established any REIT in the second type, yet.
7
REITs
TYPE 1:
REITs that mainly (51%)
invest in real estates, real
estate projects and real
estate-based rights.
TYPE 2:
REITs that mainly invest
in infrastructural
investments and
services.
1. Real Estate Investment Trusts (REITs)
Size of REITs in Turkey:
8
The Market Value of The Stocks
Traded at Borsa Istanbul (USDbillion)
The Market Value Of The StocksTraded On The Collective Products
Market (USD billion)
The Market Value Of The
REIT Stocks (USD billion)
200.6 8 7.5
Other Shares
96%
REITs
94%
Others
6%
Collective
Products
Market
4%
1. Real Estate Investment Trusts (REITs)
The Number and Market Capitalisation of REITs in Turkey
9
7,99
12,68
10,5710,11
11,93
9,01
7,5
0
5
10
15
20
25
30
35
0,00
2,00
4,00
6,00
8,00
10,00
12,00
14,00
Oct. 2009 Oct. 2010 Oct. 2011 Oct. 2012 Oct. 2013 Oct. 2014 Oct.2015
Nu
mb
er
USD
Bill
ion
Market Capitalisation Number of REITs
1. Real Estate Investment Trusts (REITs)
Common Characteristics of Turkish REITs:
• The Turkish REITs generally finance their investments by equity financingrather than by debt financing or conventional banking credits.- Total Liabilities / Total Assets < 50%(23 REITs among the total 31 REITs)
• There is no classification of REITs on being whether conventional orIslamic.
• REITs are free to declare at their IPO prospectuses and articles ofassociation that they operate in line with the Islamic rules, hence, theydo not invest in interest bearing instruments and in properties in whichtenants operate impermissible activities according to the Shariah rules.
• Build and Sell Approach - Turkish REITs generally prefer to developcommercial real estate projects to sell the properties once completedrather than to generate rental based income.
10
Overview
1)Real Estate Investment Trusts (REITs)
2)SUKUK
3)Other Real Estate Related Instruments
• Real Estate Investment Funds (REIFs)
• Sukuk Participation Funds
• Real Estate Certficates
11
2. SUKUK
• Certificates representing a proportional undivided ownershipright in tangible assets, or a pool of predominantly tangibleassets, or a business venture (such as mudarabah ormusharakah) (IFSB).
12
2. SUKUK: Turkish Sukuk Regulation
13
• The first regulation of Sukuk was made in2010 in Turkey. In this regulation, only onetype of sukuk (sukuk ijarah) was regulated,and hence, «lease certificates» as the nameof sukuk was used.
• However, with the enactment of the newLease Certificates Communique in 2014,five types of sukuk were regulated by thecommunique. But, the name leasecertificates is continued to be used.
2. SUKUK: Turkish Sukuk Regulation
14
Types of Sukuk (Lease Certificates Communique, CMB)
2) Management Agreement based Sukuk (Ijarah/Wakalah) Asset-based sukuk, no recourse to underlying assets
3) Partnership based Sukuk (Mudharabah/Musharakah)
4) Purchase and sale -Trading- based Sukuk (Murabahah)
5) Contractor Agreement based Sukuk (Istisna) Recourse to underlying assets
1) Ownership based Sukuk (Ijarah/Wakalah) Asset-backed sukuk, recourse to underlying assets
Combinations of above are also allowed by theCommunique
The majority of thesukuk issued.
2. SUKUK: Turkish Sukuk Regulation
15
8.598
3.986
0
2.000
4.000
6.000
8.000
10.000
12.000
14.000
Issue Amount (USD Million)
Total Sukuk Issuances (2011-2015/06)
Sovereign Sukuk Issues Private Sukuk Issues
Sovereign Sukuk Issues68%
Private Sukuk Issues32%
Total Sukuk Issuances (2011-2015/06)
Sovereign Sukuk Issues Private Sukuk Issues
2. SUKUK: Turkish Sukuk Regulation
16
2.645
1.341
0
500
1.000
1.500
2.000
2.500
3.000
Issue Amount (USD Million)
Private Sukuk Issues (2011-2015/06)
Cross border Domestic
Cross border66%
Domestic34%
Private Sukuk Issues (2011-2015/06)
Cross border Domestic
2. SUKUK: Turkish Sukuk Regulation
17
234
1.107
0
200
400
600
800
1.000
1.200
1.400
1.600
Issue Amount (USD Million)
PRIVATE-DOMESTIC SUKUK ISSUES (2011 -2015/06)
Public Offering Private Placement
Public Offering17%
Private Placement83%
PRIVATE-DOMESIC SUKUK ISSUES (2011-2015/06)
Public Offering Private Placement
Overview
1)Real Estate Investment Trusts (REITs)
2)SUKUK
3)Other Real Estate Related Instruments
• Real Estate Investment Funds (REIFs)
• Sukuk Participation Funds
• Real Estate Certficates
18
3. Other Real Estate Related Instruments
REAL ESTATE INVESTMENT FUNDS (REIFs):
• REIFs are the funds that mainly invest in real estates, real estaterights and real estate securities.
According to Turkish regulation of REIFs (2014);
• REIFs are established and managed by the portfolio managementcompanies that are authorised by the CMB Turkey.
• A REIF must invest at least 80% of its total fund value in real estateinvestments (namely, real estates, real estate rights and real estatesecurities).
• The units of REIFs are allowed to be sold only to qualified investors.
• Since the REIF regulation is a new regulation (2014), by this date, twoREIFs have been established and the issuances of fund units will berealised soon.
19
3. Other Real Estate Related Instruments
SUKUK PARTICIPATION FUNDS: the mutual funds that mainly invest insukuk.
According to Turkish regulation of Mutual Funds;
• Participation funds are the investment funds that only invest insukuk, participation accounts, corporate shares, gold and otherprecious metals and other non-interest-bearing instruments.
• Sukuk participation fund is a type of participation fund that mustinvest at least 80% of its total fund value in sukuk.
• There are currently 7 sukuk participation funds with the total fundvalue of USD 13.7 million in Turkey.
20
3. Other Real Estate Related Instruments
REAL ESTATE CERTIFICATES:
• Real estate certificates are securities issued by corporates forfinancing real estate projects.
• Each certificate represents a particular section or a certain area unitof a section of a real estate project.
• Real estate certificate holders may demand either a particularsection physically or monetary value of that section.
• There was an example of issue in the past (1996), however, notissued for a long time.
21