Islamic finance a growing vehicle
A report published on July 20 by RICS (the Royal Institution of Chartered Surveyors) reveals growing investment in European real estate from the Middle East, increasing interest in leisure real estate and a growing preference for Islamic finance.
More than 90% of investors say that they have invested in the UK, with 85% having invested in the rest of Europe, 47% in the USA and 38% in South East Asia. A large proportion of this real estate investment is compliant with the principles of Shariah law.
The Islamic financial services industry is fast becoming a major global market, estimated to be worth as much as USD 500 bln worldwide (and expected to grow at 12% to 15% a year over the next ten years).
Real estate investment from the Middle East was estimated EUR 1.2 bln (USD 1.4 bln) in 2001 by the Dubai International Financial Centre (DIFC).
Much of this market, of which real estate investment is becoming a large feature, conforms to the principles of Shariah law which forbids the payment of interest and restricts activities permissible for investment.
The report was commissioned by property consultants King Sturge and prepared by Dr Ali Parsa of London’s South Bank University.
London’s wide range of skills and expertise puts its commercial property industry in the strongest position to take advantage of the growth in Shariah compliant real estate investment, with many businesses able to benefit.
Similar to “ethical funds”, Islamic investment requires careful portfolio and stock selection to ensure compliance with Shariah investment criteria. Shariah property investment funds prohibit renting properties to organisations engaging in particular activities such as gambling and alcohol consumption.
Leisure real estate a growing market
Commercial and industrial real estate are reported as the most popular sectors for investment by Shariah funds, with three quarters of respondents already investing in industrial property. A growing area is the market’s move into property investments such as leisure and elderly care which are compatible with Shariah compliant principles and somewhat reflective of developments in other ethical funds.
According to Angus McIntosh FRICS, Partner & Head of Research at King Sturge, “There is a real need to find out more about the growing opportunities for Shariah compliant real estate investment and the nature of the market, as this area represents a crucial opportunity for many businesses.”
The report reveals that the most important factor considered by Shariah compliant funds when buying and selling property is tax status (cited by 65% of respondents), followed by the availability of specialist expertise (61%), the regulation of investment and risk assessment regulation (both 47%) and the transparency of transactions (41%).
Dr Ali Parsa, author of the report and director of research at London South Bank University’s Property Surveying and Construction department, said, “This shows the likelihood of a substantial increase in the funds available for Shariah investment as a result of growing wealth in Muslim countries. Most of the new investments will be through some form of Shariah compliant funds.”
The full report is available from www.rics.org
