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Topic: General News - Publication: Immobilier Zeitung

Sharia conforming property investments

“Arabs love real estate”

After the real estate market has lost more and more customers there is now hope for investors from Islamic, in particular Arab countries. Basically, they are much interested in German property investments but they are also affected by the financial crisis.

“Arabs love real estate” announced Mushtak Parker, editor of the Islamic Banker Magazine published in London on the occasion of the 1st Islamic Finance & Real Estate Forum in Frankfort. The most important market for all kinds of Islamic investments is the UK, where there have been for quite a long time, structures for investments in accordance with the Islamic legislation called the Sharia. Right after the UK it is Germany. Jalalle Chahboune, the Director of the Institute for Islamic Banking and Finance in Frankfurt also sees a considerable interest in German real estate of Islamic banks looking for conservative investments.

The reason why it has often not been more than interest is the structure that is necessary to avoid the Islamic prohibition of interest. The most common forms in Germany are Ijara agreements with intermediate companies dealing with the financing of the bank acquiring the property and granting the investor a beneficial interest for fixed payments. The second possibility is the Murabaha agreement providing that the intermediate company sells the property immediately at a higher price paid in installments to the investor.

There are also restrictions in respect of the use of the property. Particularly everything that has to do with sex, gambling, alcohol, pork, weapons or other non Sharia conforming financial services is not allowed. The fact that the lottery head office of Lotto-Toto in Saxony-Anhalt failed to be sold has been due to these requirements, said Lars Oliver Breuer, a managing director of Savills who is responsible for investors from Middle East. Yet, a minor part of the income - depending on the group of revenues, usually about 3 % - is allowed to come from the prohibited areas, mentioned Chahboune.

One of Breuer’s London customers, Arab Investments Ltd., who has launched Islamic conforming funds, told him that the financial crisis has even lead to an increasing interest in real estate shown by Arab institutional investors, since present share investments are being rearranged.

But Arab Investments has also been affected by the financial crisis. As announced on the conference forward deals for the second German fund – the shopping centre Tempelhofer Hafen in Berlin (purchase price: 140 million euro) and the St. Annen Galery in Brandenburg on the river Havel (purchase price: 50 million euro) - were already made last year. The crisis of the Hypo Real Estate, however, caused the credit line to cease to apply. Breuer pointed out that the negotiations with a banking group about the financing of these deals but also about the third fund with offices from Hamburg for about 250 million euro has been making good progress. The fourth German fund, however, planned for next year with a transaction volume of about 200 million euro has been put on hold.