Real estate and Islamic finance instruments
The Turkish real estate sector is offering great opportunities for investors from all around the world. The sector has come to prominence in the last few years, and it is attracting a considerable number of investors around the globe, especially from the Gulf region.
Although there is a decrease in demand and house prices in Eurozone real estate market, Turkey is still promising. Construction activities have also significantly declined in both residential and non-residential buildings in Europe last year. This negative performance of the construction sector has had a notably adverse effect on the real estate sector.
Despite the situation in Europe, Turkey is now using Islamic finance instruments to boost its real estate sector. Furthermore it is not only Turkish finance institutions or the Turkish government who are making an effort to develop real estate projects. Foreign finance institutions such as Kuwait Finance House (KFH) are also entering the sector. Chief banking officer at KFH, Mohammad Al Fouzan, recently announced that a new, innovative Turkish real estate service has been launched by KFH.
He stated that the service will support KFH customers searching for properties in Turkey, providing assistance on negotiation of an acquisition price along with competitive Islamic real estate financing, and offering post-sales services, should investors need Kuveyt Turk to manage the properties in their absence.
In addition to supporting investors in the acquisition of property in Turkey, Islamic finance instruments such as Sukuk are being used for financing real estate projects. Sukuk Mudarabah were issued for the first time by both Aktif Bank and the Agaoglu Group of Companies to finance the Istanbul International Finance Center Project. This issuance carries a one-year maturity tenor and TRY100 million (US$50.34 million) nominal value. The issuance received an overwhelming demand, being oversubscribed to TRY300 million (US$151.03 million).
Second Sukuk issuance by the Turkish treasury
The Turkish treasury carried out its second Sukuk issuance on the 21st August 2013. It is announced that the demand for this issuance was TRY1.81 billion (US$911.24 million) and this demand has met expectations.
The treasury stated that the direct sale to banks method was used for the issuance. The lease certificates have a two-year maturity period and they will be due on the 19th August 2015. The lease certificate amount and the final lease payment will be made on the due date. The lease certificates have a 4.5% lease income to be paid every six months. Additionally, the lease certificates will be traded on the Borsa Istanbul Debt Securities Market.
Ali Ceylan is a partner at Baspinar & Partners Law Firm. He can be contacted at
[email protected]
.