Viewpoint – Halal hotels: Renewed interest

Categories: Europe News Viewpoint

While Islamic investment into hotels outside of the GCC is nothing new, the last three months or so have been particularly active, suggesting a softening perception among Shariah compliant investors of this sector.

Here at 90 North, we made our first hotel acquisition at the beginning of 2016, being a Travelodge fairly close to London’s Gatwick Airport. I recall a detailed analysis of the likely Haram elements of the hotel’s income, determining that as a quality limited service hotel, it was below the widely held 5% threshold.

It was a further 2.5 years before we ventured back into the sector, and more than 10 thousand miles away outside Brisbane, Australia. We acquired a brand-new Quest aparthotel in the rapidly growing suburb of Springfield.

With no food or beverage provision, the revenue calculation was simple, and located between the health and education districts of the city, the public perception of the accommodation was very positive.

But we are certainly not alone, with Abu Dhabi Islamic Bank UK recently financing Sidra Capital’s acquisition of a further Travelodge, this time at London’s Heathrow Airport, with Paul Maisfield, the head of real estate, commenting at the time that: “We are seeing a rise in demand for UK commercial property from the Middle East, specifically the GCC.”

While it is perhaps this demand that is driving Islamic investors to consider hotel investment opportunities, it would also seem to be a slight relaxation of the Shariah criteria when assessing such
opportunities.

Last year, the Shariah Advisory Council of Securities Commission Malaysia (SACSC) included a stock in the hotel sector in its list of compliant securities for the first time. This followed a reassessment of the SACSC’s previously negative qualitative assessment of the hotel sector’s image. This then allowed the quantitative assessment of business activity and financial ratios to determine that Pan Malaysia Holdings was a compliant investment.

A similar view that the primary purpose of hotels is to provide accommodation allowed the truly
headline announcement in July of the SG$300 million (US$217.38 million) Islamic financing by RHB Bank of Royal Group’s five-star SO Sofitel hotel in Singapore. Considered to be one of the largest Islamic hotel financing deals globally, it was also the first Islamic real estate financing in Singapore’s central business district.

Having said all that, perhaps more relevant to hotels than most other real estate sectors, it remains as ever for actual end investors to determine whether they are satisfied with the Shariah compliance or not.

This article was first published in Islamic Finance news dated the 22nd August 2018.