IslamicBanker – Islamic real estate global growth trajectory

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When I started within this industry whilst at Citigroup, Shari’a compliance wasn’t understood beyond a narrow group of individuals within the real estate world. Our lawyers were learning how to structure it as they went along along and, frankly, we didn’t mention our Shari’a compliance requirements to to the seller of the properties as with no comprehension of what this meant such uncertainty would have led to very few transactions being agreed.

What has been fascinating since is the momentum that has been building over the last twelve years and which continues today.

Real estate has always been a key sector for investment, and while the casual observer may view Islamic investors’ affinity with the asset class as being driven by ego, I still firmly believe that it is “Return on Equity” rather than “return on Ego” that is driving investors decisions. Real estate provides something tangible. It is a store of wealth that will always be there, and whilst such quantum of wealth will ebb and flow, with relatively low barriers to entry it has always been a preferred choice for numerous wealthy individuals from across the world and across faiths.

What was missing prior to the mid-1990s were the tools and the skill sets amongst professionals to advise on Shari’a compliance options. As I said, when I started in 2003 we were paying lawyers and tax advisors to learn how to structure transactions under English law and were subsequently trailblazing with the first ever Shari’a compliant real estate transactions in Scotland, Sweden and Switzerland, along with the first transactions for us in Germany and the Netherlands.

A lot has changed since then, with tax efficient Shari’a compliant structures now well established, tested and proven across the US, the UK, Continental Europe and beyond. At the same time, the number of professionals who are able to cement these transactions together has blossomed over the last decade. There are now sufficient lawyers, accountants, surveyors and tax advisors familiar with the Shari’a requirements and structures to advise the investment professionals delivering opportunities to their clients.

Meanwhile, the understanding amongst the existing landlords and their advisors is infinitely greater than their advisors is infinitely greater than it was, with Shari’a compliance being positively associated with significant capital flows and credibility as a purchaser.

Intriguingly the fall in the global real estate markets, broadly between the summer of 2007 and 2009, and the early stages of recovery provided and opportunity for Islamic real estate, which I am delighted to report is seized. Landlords, frequently wiped out by he fall in values, were looking for new sources of equity and Shari’a compliance provided the conduit they were looking for to such monies. Able to analyse the fundamental value behind the clearing smoke, Islamic investors were amongst the first to reinvest, gaining handsomely from the increase in values since.

As 20-15 commences, the world is getting used to lower inflation, a stronger US dollar and materially lower oil prices. Counter-intuitively whilst real estate has traditionally provided protection from rising inflation and it was the wealth generated from high oil production that kick-started the Islamic real estate industry in the first place, as inflation expectations and oil prices have both fallen, the enquiries from South-East Asian and Middle East Islamic investors have been rising.

Perhaps realising that the previous certainty of energy wealth is now less so, investors are looking to make their existing wealth work harder, with real estate providing cash returns significantly better than can be achieved on bank held deposits. Meanwhile, at least for the moment, the appetite from Islamic investors for US assets is undiminished, with the strength of the US economy being a core driver of appetite for this continent.

I remain very confident that the next twelve years will provide even greater growth in the global Islamic real estate industry and look forward to reporting further on the trends and developments in the future.

 

Article from IslamicBanker