Islamic Owned Real Estate Values Grow to Estimated $1.1 Trillion in Middle East, Asia and Africa
Hardly noticed by the televised daily violence in the Middle East, Asia and Africa is the growing value of Islamic-owned real estate in that part of the world. Ernst & Young places the estimated value at $1.1 trillion - and growing. The 2011 estimated value was $826 billion.
The religious leaders are losing faith in dealing with complex derivatives and other risky Wall Street-derived trading concoctions and, instead, are beginning to put their monies from oil, gas and earthly minerals production into physical real estate, like buildings that they can touch and feel.
That's the most recent consensus of analysts and persons in a global position to know or speculate on where the sands are blowing on Islamic's real estate community.
They say by far the thorniest problem facing serious international investors in Islamic properties or holdings is the lack of a coordinated definition of investment rules. The rules today vary immensely from region to region. For example, excessive financial leverage is not allowed to play any part in a Sharia-compliant product. Sharia is Islamic law.
According to DH Flinders, an Asia-Pacific corporate advisory practice that focuses on real estate, financial services, and small capital sectors, Malaysia appears to be leading its Muslim brethren in developing investment-grade Islamic products, including Islamic real estate investment trusts (REITs) in the country.
Guidelines for Islamic REITs were laid down by the Malaysian government in November 2005 through the Securities Commission (SC), which made Malaysia the first jurisdiction to introduce such measures. There are now two Islamic REITs in a total market of 13 REITs in the country.
Deutsche Bank in Malaysia is an active player in Malaysia real estate and financing. The bank expects more products to introduce a volatility target overlay to avoid excessive risk-taking.
Measures would include using monthly rebalancing to ensure the target volatility is maintained. Islamic credit-linked notes are also expected to play a bigger role in the overall portfolio management industry in the near future.
Singapore, too, like Malaysia, would like to be known as the principle Sharia hub
In Asia. Over the last several years, Monetary Authority Singapore (MAS) has helped to develop Islamic finance in Singapore's financial markets.
Several sizeable cross-border transactions have been achieved, including the world's first Sharia-compliant data center fund (Securus Data Property Fund); the listing of the world's largest Islamic REIT (Sabana Sharia-Compliant REIT) on the Singapore Exchange, as well as Khazanah Nasional's SGD1.5bn sukuk -- the largest Singapore dollar sukuk to date.
The spread of Islamic finance in Southeast Asia is expected to gather momentum in countries such as Indonesia and Brunei, where banks are seeing increasing investor interest in Sharia-compliant alternatives to conventional financing.Recent 12-month real estate financing activity in various sectors show:
- The Middle East's oldest Sharia-institution, Dubai Islamic Bank (DIB), achieved a 2011 net profit of $272.7 million, an increase of 27.8% over the previous year,
- At the same time, DIB's rival, Emirates Islamic Bank (EIB), lost $122 million in 2011, after a profit of $16.2 million a year earlier.
- Kuwait Finance House, which specializes in real estate financing at home and abroad, surprised the market in late March, announcing it was divesting non-profit making operations.
- Dubai Bank, another Islamic real estate lender, was taken over by the United Arab Emirates' largest bank, Emirates NBD, on the orders of the Dubai government. Dubai Bank posted a net loss of $79 million in 2009 and since then has not reported figures.
- Bahrain-based private equity investor Arcapita Bank, which has a range of real estate investments in Bahrain and Dubai, is working with advisers ahead of imminent debt repayments totaling $1.1 billion for the Manama-based group.