Islamic Real Estate Funds

Islamic Real Estate Funds are subject to certain tenant screening criteria like the kind commonly known and previously discussed: Industries related to alcoholics, pork, pornography and conventional finance are excluded as tenants. Beyond the industry screen the second relevant issue in regard to real estate funds is the form of leverage, which needs to be Shariah compliant and as a matter of fact comes into conflict in certain jurisdictions with the tax treatment in regard to double real estate transfer tax or rental tax duty on Islamic lease structures.

Another important matter of fact is that traditionally Muslim investors are heavily invested in real estate and as such facing a higher degree of illiquidity in their portfolios like other investors. Solutions are rare and three variants can be discussed for that: Open-ended funds, Real Estate Investment Trusts and Sukuk.

Beyond the above mentioned issues Islamic Real Estate Funds could be characterised as being high leverage, although under Islamic structure, high yield and high IRR expectations of above 10 % frequently but without liquidity structured commonly as closed end fund. This aspects are a result of local demand in the Gulf countries.