In times like now, when credit is difficult to get (as in real estate) and is expensive , often the best placed are those who abide by the Shariah, the Islamic code of conduct.
Under the code, you cannot lend or borrow, and you cannot expect fixed returns, but you can share in profits and losses. In the real estate business, Shariah practitioners come together to provide the required capital cushion to builders. And they do this by booking flats in the project at the pre-launch phase, and later reselling these to end-users.
“By and large, an investor who believes in Shariah principles will not calculate the interest component of the investment,” says Farook Mahmood, CMD of property brokerage firm Silverline Realty.
Prashanth Sambargi, partner at brokerage firm Mars Realty, adds, “The developer is assured of his money, though there could always be a downside (for the person booking flats). But the risk makes the investment Shariah-compliant.”
Some developers have a strong network of investors who abide by Shariah principles, and who often have the first right of refusal for a company’s projects.
Mahmood doubled up as an investor in ETA Gardens’ residential project on Magadi Road. “We underwrote 200 apartments (out of the 800) in the project,” he says.
The investor typically liquidates after the developer has finished marketing his share of the project. This would mean a waiting period of at least 3-12 months during which time the project could see capital value appreciation. “Developers give a fair chance to brokerscum-investors before they launch the project officially,” says Irshad Ahmed, president of real estate brokerage firm Irshads Property Matters.
Syed Mohamed Beary, CMD of real estate firm Beary Group, says the pre-launch benefit that the investor gets is passed on to the end user. “It’s at least Rs 150-175 per square foot cheaper compared to the launch price,” he says.
On the flipside, there is a great deal of risk for investors if flats are not sold for a long time. The investor will have to sit on unsold inventory that the builder may not buy back.
There are also Shariah-compliant real estate funds that Shariah-abiding investors can invest in. Secura India Real Estate Fund, a SEBI-listed venture capital fund that invests in real estate projects, has received a lot of interest from investors in Kerala. “We have created a corpus of Rs 10 crore. A majority of our investors are those who comply with Shariah norms and have invested between Rs 5 lakh and Rs 50 lakh each. We have in turn invested the money in real estate projects in Calicut,” said Ajmal, company secretary at Secura Investment Management.
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