The SP Funds S&P Global REIT Sharia ETF (SPRE) offers exposure to the Sharia-compliant Real Estate asset class through REITs that meet Sharia screening criteria, such as compliant business activities, lower debt levels, and allowable income within acceptable limits.
Is investing in real estate halal?
Investing in enterprises, often known as equities or stocks, and fixed income assets, such as Sukuks (Islamic bonds) or real estate, are the two main categories of halal investing. Both forms of investments must adhere to Islamic rules in order to be considered Halal.
Income-based investments offer lower, more consistent returns, whereas company investments offer bigger returns but are also riskier.
A real estate investment trust (REIT) is a type of real estate collective investment scheme that combines the greatest aspects of both real estate and trust funds. The i-REIT is a Shariah-compliant variation of the traditional REIT.
In November 2005, the Malaysian government published Guidelines for Islamic Real Estate Investment Trusts through the Securities Commission Malaysia (SC), setting a new worldwide benchmark for the development of this instrument and making Malaysia the first country to do so. These recommendations provide Shariah compliance guidance to market participants while building and operating an i-REIT. These standards can act as a supplement to the existing Real Estate Investment Trust Guidelines.
- In the context of mixed operations, the Shariah Advisory Council (SAC) of SC has established a 20 percent threshold.
A Shariah committee or Shariah advisor must also be constituted to provide Shariah compliance advice to the fund manager.
In Malaysia, both REIT and i-REITs enjoy comparable tax treatment in terms of stamp duty, real property gains tax, and corporate tax. Both have similar regulatory frameworks, with the exception that i-REIT must adhere to Shariah requirements.
- Property managers are responsible for the upkeep and management of real estate.
i-REIT is a profitable investment because it generates returns and distributions from rental revenue as well as capital appreciation.
By investing in a variety of real estate and real estate-related assets, investors can diversify their risk profile.
An i-REIT must share 90% or more of its entire income to unit holders to qualify for tax transparency status.
An i-REIT is physically capable of generating consistent, long-term revenue via rental income and capital appreciation, which may be used to pay regular dividends on a regular basis.
When opposed to buying real estate outright, an i-REIT allows investors to engage in the real estate market with a lower initial investment.
The value of real estate is predicted to rise in lockstep with the pace of inflation.
Having said that, investors should be aware of the following i-REIT risks:
The performance of the property market affects the total return of an i-REIT. As a result, if the value of an i-underlying REIT’s properties falls, the unit price of the i-REIT may fall.
Investors will have no direct say in the management company’s investment decisions, such as when to buy or sell real estate or how it will be handled.
The i-REIT is likewise vulnerable to market demand and supply fluctuations. As a result, market volatility, economic confidence, and interest rate changes may have an impact on the price of i-REIT.
Stockbrokers can help investors acquire and sell i-REITs that are listed on the Exchange. The following are the four (4) i-REITs that are listed on Bursa Malaysia:
*Stapled securities, which include KLCC REIT units and KLCC Property Holdings Berhad shares.
What investments are halal?
Sukuks are a more widely accepted type of Islamic bond (see below).
- GOLD. When it comes to investments, gold is seen as a safe and classic Sharia-compliant option.
- SUKUK. Sukuks are a low-cost alternative to regular bonds because they pay no interest.
Are REIT Haram?
Islamic Real Estate Investment Trusts (I-REITs) are gaining popularity as a more flexible and diverse investment vehicle than direct real estate exposure with comparable rates. A number of fresh issuances outside of Malaysia, where I-REITs originated, demonstrate this appeal and show that this sub-segment is gaining traction.
For the newbie, though, the question is why does the world require Islamic REITs. Real estate investment, on the other hand, is not halal per se. REITs own and, in certain circumstances, run commercial properties such as apartment complexes, hospitals, office buildings, agricultural and forest property, warehouses, hotels, restaurants, and retail malls. For Islamic REITs, the issue is the type of business tenants do and how the REIT manages its money.
Sharia compliant
“In general, an Islamic REIT is a real estate collective investment plan in which the tenants engage in Sharia-compliant operations,” explains Dr. Aznan Hasan, a member of Malaysia’s Central Bank’s Sharia Advisory Council and the Securities Commission of Malaysia’s Sharia Advisory Council.
Sharia compliance for an Islamic REIT applies to the real estate’s use, including sub-tenancies, financing of the property’s acquisition and development, as well as cash and liquidity management and property insurance schemes.
The Malaysia-based Al Aqar KPJ REIT, which invested in domestic hospitals and was founded in June 2006, was the world’s first Islamic REIT. Al Hadaharah Boustead REIT, also from Malaysia, followed in 2007, with an initial investment in palm oil plantation lands. Axis REIT, the world’s first Islamic industrial and office REIT, was founded in 2008, followed by KLCC REIT in 2013 and Al Salam REIT in 2014.
Outside of Southeast Asia, where Islamic REITs are most active, momentum has developed, particularly in the Gulf Cooperation Council.
REIT in the GCC
Emirates REIT, which was founded in 2011 as the UAE’s first REIT and listed on Nasdaq Dubai in April 2014, officially became the world’s largest Islamic REIT at the end of last year. At the time, the trust had total assets of $773 million (Dh2.83 billion) and a market capitalization of $333 million, surpassing Singapore’s Sabana REIT, which is now placed second. As the value of its portfolio developed, Emirates REIT’s overall portfolio value was $763.5 million at the end of the first quarter, a 10% increase year over year.
Meanwhile, Emirates REIT has been expanding its Abu Dhabi holdings. Equitativa, the trust’s managing firm, formed The Residential REIT in February, a trust with roughly 500 residences in Dubai Motor City and Al Hamra Village in Ras Al Khaimah. It is the UAE’s first REIT dedicated solely to residential property. The Logistics REIT and The Hospitality Property Fund were also established by Equitavia. Next year, the Residential REIT will be listed on the stock exchange.
“Institutional and private investors are showing a strong interest in REITs across the region, according to Equitativa chairman Sylvain Vieujot. “Yields are attractive in the current climate, particularly in the residential sector, and are likely to generate medium-term upside.”
Banks get into the act
On March 23, Emirates NBD, Dubai’s largest bank, floated its own Islamic REIT, ENBD REIT, on Nasdaq Dubai, raising approximately $100 million. Since the end of 2014, it was Dubai’s first initial public offering (IPO).
By the end of the year, Abu Dhabi Financial Group, an alternative investment firm with $5 billion in assets under management, plans to launch Etihad REIT, an Islamic REIT. The REIT has ten income-producing properties in four emirates, with a total value of almost $820 million, in a variety of real estate subsectors such as residential, retail, warehousing, and staff housing. It would be the UAE’s sixth REIT.
Furthermore, Arcapita Investment Management, a Bahrain-based Islamic investment group, recently acquired a portfolio of logistics assets in Dubai for around $150 million, bringing its total logistics stock in the emirate to over $150 million. It claims that it may combine them into a new logistics REIT that would be listed on one of the regional exchanges.
First REIT
While the first REIT in the GCC, Al Mahrab Tower REIT, was established in Kuwait in 2007, it remained closed and unlisted. The private Inovest REIT debuted in Bahrain in 2009, followed by the Al Salam Asia REIT in 2014, while the country’s first public REIT, Eskan Bank REIT, debuted in January.
The first REIT laws were passed in Saudi Arabia in October of last year. Riyadh REIT and Al Jazira Mawten REIT are two new REITs that have been added to the list. The Jadwa REIT Alharamain Fund, for example, went public in April.
The total number of (listed) Islamic REITs available worldwide remains limited in comparison to demand from Muslim investors, notably takaful businesses, which have historically shown a strong interest in REIT investments. This means that, despite high annual returns of 6% to 8%, short-term investors may be put off by Islamic REITs’ lower liquidity compared to the conventional REIT market. However, for investors with a longer time horizon, Islamic REITs are an excellent way to generate income while also preserving Islamic values.
Is investing in Apple halal?
As a result, The Halal Investors has assigned Apple an ESG rating of 0, indicating that “the Company is assessed to have a significant negative impact on society and the environment.”
Is Netflix halal stock?
Haram is the main source of revenue for the company. At least one of the following factors has a net negative impact on the company: the environment, society, or governance.
Is Alibaba stock halal?
Haram accounts for a significant portion of the company’s revenue. It’s debatable whether the company’s management is based on interest. At least one of the following factors has a significant negative impact on the company: the environment, society, or governance.
What is Islamic exchange traded?
The underlying asset of an Islamic exchange-traded fund based on gold and silver (Islamic ETF Gold and Silver) is gold and silver (such as gold and silver bullions/bars). On a pro-rata basis, the Islamic ETF units represent the unitholders’ undivided ownership of gold and silver. During the fund’s life, the gold and silver will be retained by the custodian. Because this product uses ribawi items, such as gold and silver, as an underlying asset, it was presented and debated at the SAC meeting to get their feedback.
The SAC reviewed the difficulties surrounding the Islamic exchange-traded fund based on gold and silver in a series of sessions (Islamic ETF Gold and Silver). The SAC decided that gold and silver (such as gold and silver bullions/bars) could be used as an underlying asset for Islamic ETFs during its 142nd meeting on 30 January 2013 and 161st meeting on 21 June 2014. The SAC also decided that the notion of an Islamic ETF based on gold and silver is acceptable to Syara’ and that it is Shariah compatible if certain conditions are met:
Conditions for the Creation, Structure, and Trading of an Islamic ETF Using Gold and Silver as the Underlying Asset
- The Islamic ETF units represent an equivalent amount of physical gold and silver held on behalf of the Islamic ETF by the custodian. As a result, the Islamic ETF units represent the pro-rata ownership of gold and silver by unitholders. The creation and redemption of Islamic ETF units must be backed by defined quantities and quality of actual gold and silver. As a result, at the time of the Islamic ETF’s origin and establishment, the fund management and Shariah adviser must ensure that:
- There is enough gold and silver in the right quantity and grade to meet the specifications;
- The gold and silver that serve as the underlying assets for the Islamic ETF units are allocated and segregated.
- When unitholders redeem Islamic ETF units, the gold and silver can be distributed to them.
- The trading of Islamic ETF units between buyers and sellers must be done in cash and on a spot basis.
- The Islamic ETF units can only be traded if the buyers have cash accounts or a margin facility, because the trading of the Islamic ETF must be done on a cash basis (via third-party financing).
- In the Shariah pronouncement, the Islamic ETF’s Shariah counsel must provide extensive explanation on the Islamic ETF’s Shariah compliance on the following:
- The Islamic ETF’s Shariah adviser must undertake an annual audit (which includes a site visit to the location where the gold and silver are stored) to check their presence, quantity, and other facts such as movement records. This is to ensure that the Islamic ETF units generated are backed by segregated and allocated gold and silver stored in the vault.
- The Islamic ETF’s Shariah adviser must also prepare an annual audit report, which must be included in the Shariah adviser’s compliance report to the unitholders.
- Unitholders can exchange their Islamic ETF units for actual gold and silver or monetary equivalents.
Can an Islamic REIT own real estate in which all the tenants operate non permissible activities?
An Islamic REIT is not permitted to own real estate in which all of the tenants engage in non-permissible activities, such as a casino building in which all of the tenants engage in non-permissible activities, even if the percentage of rental revenue from that building to the Islamic REIT’s total turnover is still less than 10%.
What is a D REIT?
REITs are regulated investment structures that enable collective real estate investment, in which participants pool their capital and invest in a trust with the goal of profiting or generating income from real estate as trust beneficiaries. REITs raise money to build or buy real estate assets, which they then sell or rent to make money. At the end of each fiscal year, the income created is dispersed to the shareholders. They manage income-producing real estate and related assets, such as office buildings, shopping malls, apartments, hotels, resorts, and warehouses, among other things.
Kenya’s real estate sector has grown at an exponential rate throughout the years. Despite the fact that the market is undersupplied, particularly in housing at the lower end of the market, development financing costs remain high. The high financing costs associated with real estate development, as well as the undersupply of housing, have proven to be a barrier to the sector’s continued growth. To address this, the government aimed to stimulate real estate investment through REITs, which are regulated by the Capital Markets Authority and traded like stocks, allowing investors to purchase and sell shares (CMA). REITs allow various investors to contribute to the development or purchase of real estate. Stanlib, UAP Investment, Nabo Capital, and CIC Asset Management Limited are some of Kenya’s REIT managers. Kenya, on the other hand, currently has only one listed REIT, the Stanlib Fahari i-REIT, which began trading in November 2015.
The Trustee, in the case of REITs, buys the property and retains it for the benefit of the beneficiaries, who are usually the Investors. The Trustee is in charge of appointing and supervising the Manager, as well as ensuring that the scheme’s assets are invested according to the Trust Deed and Offering Memorandum. They also make sure that the REIT’s assets are distributed in accordance with the Offering Memorandum.
This is a type of REIT in which investors pool their funds to purchase long-term income-producing real estate, such as housing, commercial, and other types of real estate. Capital appreciation and rental income provide benefits to investors. The appreciation is normally awarded to unitholders after a set period of time has passed.
D-REITs are a type of REIT in which investors pool their money to buy qualified real estate for development and construction projects. This could comprise residential or commercial developments. Once the development is complete, D-REIT investors can opt to sell, reinvest, or lease their shares, or convert their shares into an I-REIT.
An Islamic REIT is a special type of REIT that invests primarily in Shari’ah-compliant, income-producing real estate. Before investing in real estate, a fund manager must conduct a compliance test to guarantee that it is Shari’ah compliant and that non-permissible activities are not conducted in the estate, or if they are, they are done on a minimum basis.
REITs have the advantage of being exempt from double taxation; REIT schemes are exempt from corporation tax and income tax, with the exception of withholding tax on interest income and dividends. Other advantages include:
- REITs allow individuals and groups to pool their money and engage in the market. This means that groups and cooperatives will be able to participate in the market. This allows investors, particularly those in the middle class, to get easier access to and ownership in the burgeoning real estate sector in a less capital-intensive manner than a direct property acquisition.
- Higher Yields and Returns – Because REITs have long-term lease agreements with tenants, their rental income and management expenses are predictable over long and short periods of time. Notably, the real estate industry offers positive returns, with commercial, retail, and residential yields of 10.0 percent, 8.9 percent, and 5.6 percent, respectively, in 2017.
- Investments in I-REITs can readily be converted into liquid cash by selling the units in the market or offering them for redemption in the case of open-ended funds, unlike direct property investments, which are often illiquid.
- Investors in REITs have the benefit of investing in a range of real estate, such as shopping malls, residential developments, and industrial projects, among other things.
- REITs provide investors with access to specialists such as property managers and fund managers who are knowledgeable about the industry and can help them capitalize on possibilities.
- REITs are adequately transparent because they are listed and traded in the public realm. REITs must also provide timely financial information to their respective investors on important risks and business developments.
- Simple tax treatment Unlike other partnerships, REIT investors have a simple tax situation. REITs are exempt from VAT and stamp duty, and their dividends are classified as capital gains, ordinary income, or returns on capital for tax reasons. REITs do not pay corporate taxes, so the regular income portion of the dividend is taxed at the investor’s individual tax rate. The capital gains portion is only taxed when the REIT sells assets.
- The loss of rental income caused by the termination or non-renewal of lease agreements, as well as the failure to find replacement tenants in a timely manner.
- Investors in close-ended REITs are unable to access their funds before the conclusion of the investment period. Unless there is an arrangement with the Trustee’s consent for the sale of the Investor’s units, the investor cannot seek to redeem his investment before the end of the investment period.
- Economic and political conditions that could cause the property’s value to depreciate.
- Changes in taxes While REITs are now exempt from VAT and stamp duty, these benefits may alter depending on the current tax framework.
- Only a small number of investors, particularly institutional investors such as pension funds, are permitted to invest up to 30% of the trustees’ assets.
REITs are a good way to raise capital since they allow people to invest in real estate developments. As a result, investors are urged to choose the REIT route and get the rewards. In Kenya, REITs are still in their infancy, with only Fahari i-REIT being listed and trading at Kshs 11.10 as of November 30, 2017, a 44.5 percent decrease from its issuing price of Kshs. 20. Fahari I-REIT announced dividends of Kshs. 0.5 per unit for its first year in operation, which amounts to an annual dividend yield of 2.6 percent on its issuing price. The poor performance is due to a large part of rental income being spent on professional fees, therefore service providers could consider reducing their fee drawings to improve investor confidence in the product. REITs in Kenya have the potential for growth, with returns of up to 25.0 percent and rental yields of up to 10.0 percent and 8.9 percent in the commercial office and retail sectors, respectively. With increased government support, public awareness, and REIT service providers aligning their interests with those of investors to improve returns, REITs in Kenya have the potential for growth.
