Exploring the Features and Benefits of Shari’ah Compliant REITs
Islamic Real Estate Investment Trusts (I-REITs) are a unique type of REITs that only undertake Shari’ah-compliant activities. This means that the investment activities of an I-REIT must adhere to Islamic principles and values, such as avoiding interest-based transactions and investments in prohibited industries.
Img: Ass. Professor Engku Rabiah
To ensure compliance with Shari’ah principles, a fund manager is required to conduct a compliance test before making an investment in an I-REIT. This test involves a comprehensive review of the REIT's investment activities, including its underlying assets, income sources, and investment strategies. The fund manager must also ensure that the REIT's operations are overseen by a Shari’ah board or advisor, which is responsible for ensuring that all investment activities are in compliance with Islamic principles.
Investing in I-REITs provides an opportunity for investors to align their investments with their religious beliefs, while also benefiting from the potential returns offered by the real estate market. Additionally, I-REITs offer an attractive investment option for investors in Muslim-majority countries or those who wish to diversify their portfolios globally.
In recent years, the popularity of I-REITs has been on the rise, particularly in Muslim-majority countries such as Malaysia, where the first Islamic REIT was launched in 2005. Today, Malaysia is one of the largest markets for I-REITs, with a range of Shari’ah-compliant REITs investing in various real estate sectors, including residential, commercial, and industrial properties.
However, the growth of I-REITs is not limited to Muslim-majority countries alone. In other countries, such as the United States, Kenya and Canada, there has been a growing demand for Shari’ah-compliant banking and investment products, including I-REITs, among Muslim investors. Local banks in Kenya such as The Kenya Commercial Bank (KCB), First Community Bank and the Bank of Dubai are championing the disruption.
In conclusion, Islamic Real Estate Investment Trusts (I-REITs) provide a unique investment opportunity for investors seeking to align their investments with their religious beliefs while benefiting from the potential returns of the real estate market. These types of REITs are strictly regulated and require compliance with Islamic principles, making them an attractive option for investors in Muslim-majority countries and beyond.