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Halal Property Investing: What You Need to Know

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Halal Property Investing: What You Need to Know

The COVID-19 pandemic has not only affected people’s health but also the global economy, including the property market. According to the FT, house prices in almost every major economy are booming, with annual price growth across the OECD group of rich nations hitting 9.4%, the fastest in 30 years. As the property market continues to grow, Muslim investors must ensure that their investments are halal or permissible under Islamic law. In this article, we will provide an introduction to halal property investing and explore three possible ways to invest in property.

What is Halal Investing?

Halal investing is investing in a way that is compliant with Islamic law. For Muslim investors, it is important to ensure that each investment contract is shariah-compliant, meaning that the subject matter is halal, there are no interest charges, and the investor must have a form of ownership of the property. Moreover, it is essential to use halal capital in property investments. If the capital is haram or unlawful, any profit made from the investment will not be halal either, even if the investment itself is halal.

Three Possible Ways to Invest in Property

Bank Mortgage

Conventional mortgages are considered haram based on the element of interest present. It would not be permissible to apply for one to finance an investment opportunity. However, there are halal alternatives available. In the UK, for example, there is a sharia-compliant halal buy-to-let scheme that provides halal financing for property purchases.

Sharia-Compliant REITs

A Real Estate Investment Trust (REIT) is a company that owns and manages property on behalf of shareholders. Sharia-compliant REITs are similar to conventional REITs but must undergo property and tenancy screening. Properties selected for Islamic REITs must be compliant with shariah law. Additionally, a sharia board manages the REIT to ensure it remains compliant.

Crowdfunding

Crowdfunding platforms connect people seeking equity or debt funding with investors. The investor is part of a large group of people who finance a project put forward by its owner. For debt-based crowdfunding, investors expect the borrowers to repay the full amount, including interest. This is haram under shariah law. However, halal financing options such as tawarruq or murahaba agreements could be used for Islamic debt-based crowdfunding. For equity-based crowdfunding, the investor must ensure that the investment is shariah-compliant, including the screening process, and that the portfolio excludes properties that facilitate activities such as gambling.

Zakat Treatment

Zakat is an Islamic obligation, a form of charitable giving, that Muslims must pay on their wealth annually. Depending on the structure of the investment, zakat will be calculated based on the investor’s intention at the time of making the initial investment. If the investment’s aim is to generate rental income, the investor pays zakat only on the money they have on their zakat anniversary date, not on the properties value. However, if the investment’s aim is for capital growth, the investor pays zakat on the market value of their investment on their zakat day.

FAQs

Q: What is halal investing?

A: Halal investing is investing in a way that is compliant with Islamic law. It means ensuring that each investment contract is shariah-compliant, using halal capital, and investing in halal subject matter.

Q: What is haram money?

A: Haram money refers to money that is obtained from haram sources, such as gambling, alcohol, or illegal activities.

Q: Can I invest in property using a conventional mortgage?

A: No, conventional mortgages are considered haram under Islamic law due to the interest charged. However, there are halal alternatives available, such as sharia-compliant buy-to-let schemes.

Q: What is a sharia-compliant REIT?

A: A sharia-compliant REIT is a Real Estate Investment Trust that complies with shariah law, meaning that properties selected for the REIT must be shariah-compliant, and a sharia board manages the REIT to ensure it remains compliant.

Q: Can I invest in property through crowdfunding?

A ; Yes, but the financing options used must be halal, and the investment must be shariah-compliant.

Q: How is zakat calculated for property investments?

 A: Zakat is calculated differently based on the structure of the investment. If the investment is for generating rental income, zakat is paid on the money the investor has on their zakat anniversary date. If the investment is for capital growth, zakat is paid on the market value of the investment on the zakat day.

Conclusion

 Halal property investing requires Muslim investors to ensure that their investments are compliant with Islamic law. This includes using halal capital and investing in shariah-compliant subject matter. As the property market continues to grow, Muslim investors can consider alternatives such as sharia-compliant buy-to-let schemes, shariah compliant Investments, and crowdfunding. Additionally, zakat treatment for property investments varies based on the structure of the investment, and investors must ensure that they pay zakat accordingly.

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