Al – Huda Trainings
Ch. Hamad Rasool Bhullar
REITs – the Concept
REITs are unique Real Estate Investment Trusts as
the name suggests, these are trusts which provide
investors with an investment vehicle in landed
properties
A REIT has been defined as “a vehicle which
mobilizes funds from the unit holders comprising
individuals and companies for investment in real
estate”.
These REITs acquire, develop, manage, lease and sell
the real estate properties to earn and distribute
their earnings ( over 90%) to their Trust holders
Historical Background of REITs
Over the last 50 years (since 1960) REITs
gained tremendous growth in:
USA, Canada, Australia, South Africa, Japan, Hong
Kong, Singapore, South Korea, Malaysia, France,
Netherlands, Belgium
Before the Mortgage Crisis and by the year 2006 the
Total Market Capitalization had gone above UD$
600 Billion in these countries.
Variety in Names Globally
REITS are named differently in different countries :
REIT (US, Hong Kong, Korea, Singapore),
Listed Property Trust (LPT) (Australia),
Japanese REIT (J-REIT),
Real Estate Property Trust (REPT) Malaysia),
Property Unit Trust (PUT) (South Africa),
Real Estate Investment Fund (REIF) (Italy, Spain),
Real Estate Mutual Fund (REMF) (Greece),
Mutual Fund Trusts (MFT) (Canada),
UK-REIT in UK
Islamic REITs
“An Islamic REIT is a collective
investment scheme in real estate, in
which the tenants operate permissible
activities according to the Shariah”
Collective Investment Vehicles – Trust funds
where capital is pooled from investors for
buying, managing and selling real estate
property being used in Shariah Compliant
ventures
Islamic REITs
Returns from rental income, plus;
capital appreciation, resulting from the
holding of real estate assets over the
investment period – dividends and
capital gains
Investments in residential or commercial
building, retail or industrial sites;
shares in publicly listed property
companies, unlisted Islamic securities
of property companies
SHARIAH PERMISSIBLE
INVESTMENTS FOR I-REITs
 Real Estate - Physical land and manmade
items attached to the land
 Non real estate-related assets - Cash, deposits
or other instrument convertible into cash
within 7 days
 Single purpose companies - Private companies
whose principal assets comprise real estate
SHARIAH PERMISSIBLE
INVESTMENTS FOR I-REITs
 Real estate-related assets - Units of other I-REITs,
Shariah-compliant securities of property
companies and Islamic bonds securities issued by
property companies
 Liquid Assets - Shariah-compliant securities of
non property companies
 Asset-backed securities - Islamic bonds issued
 from securitisation transaction
Islamic REITs – Further Shariah
Guidlines
 If any financings are to be raised for the
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acquisition of Properties, such financings shall be
raised through Shariah Compliant modes
All liquid cash shall be held in Shariah compliant
investment accounts
Prohibition of using any derivatives and
instruments involving interest receipts &
payments including:
Future contracts
Option contracts
Swaps
Short sales
Islamic REITs – usage of properties
Here arise two Questions:
a. what activities are permissible?
b. what is the position where mixed activities
are permissible and/or Non-permissible
carried on in the premises?
In other words, what is the criteria to be used
in deciding whether an Islamic REIT may
purchase a property where mixed activities
are operated?
Islamic REITs – Non permissible
activities
 Financial services based on riba (interest);
 Gambling/gaming;
 Manufacture or sale of non-halal products or related
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products;
Conventional insurance;
Such Entertainment activities (being indecent) that are
non-permissible according to the Shariah;
Manufacture or sale of tobacco-based products and
related products;
Stock broking or share trading in Shariah noncompliant securities; and
Hotels and resorts.
Islamic REITs – Non permissible
activities
As regards the second issue, the Guidelines says
that where mixed activities are carried on the
Islamic REIT manager must conduct
additional compliance assessments. This
involves:
– Aggregating the rental from all nonpermissible activities in the property in
question; and next
- Ascertaining the proportion the aggregate
rental so determined bears to the total
turnover of the Islamic REIT.
Islamic REITs – Non permissible
activities
If the percentage of the non-permissible rental
exceeds 20% of the total turnover the fund
manager cannot invest in that real estate.
An Islamic REIT is not allowed to own real estate in
which all the tenants operate non-permissible
activities even if the percentage of the rental
from that property to the total turnover of the
Islamic REIT is less than 20%, i.e. below the
benchmark.
The fund manager is also advised not to accept a
new tenant whose activities are wholly nonpermissible.
MANY THANKS
FOR Listening with
PATIENCE
Can be contacted @ 0300 8481603
Hamad_rb@yahoo.com