Shoura Council OKs mortgage law in Saudi Arabia

The new law will make it easier for Saudis to purchase their dream homes.

Saudi Arabia will soon have a full-fledged mortgage law as the consultative Shoura Council has passed the long-awaited law after completing debate on its four components. The draft law, which has to be approved by the Council of Ministers, will allow more Saudis to own property and banks to diversify income sources by providing loans to build real estate projects. The four components of the law are: real estate financing system, system to monitor financing companies, lease financing system and real estate mortgage system.

Some businessmen, however, have criticized the draft law. Abdul Rahman Al-Zamil, a Shoura member and industrialist, said the law would not benefit 85 percent of Saudis whose monthly income is below SR5,000: “It will benefit the large real estate firms, large real estate investors, large financial institutions and the middle class”.

The law is designed to allow much wider access to property ownership in a country where only one out of five Saudis owns a home. The new law is expected to lead to the establishment of new real estate firms and funds and open new channels of financing. At least two-thirds of Saudis do not own a home, against 35-32 percent in Europe and the United States, he said. Other estimates are lower, with Abdullatif Al-Shelash, managing director of Saudi Home Loans Co., saying in remarks published in December that only 22 percent of Saudis own a home.

The Kingdom has witnessed a boom in construction and infrastructure projects but realtors say the deficit in housing, especially for low-income households, has not been reduced. Saudi Arabia will need some 4.5 million new housing units within the next five years to accommodate its rapidly growing population.

Read: Arab News

The Saudi construction boom

In the early 1980s almost all housing and real estate development was government sponsored. The situation is changing fast with the private sector leading and more than 50 companies alone licensed to sell and develop real estate in the Kingdom last year. Another indicator of the Saudi construction boom is the expansion of the Saudi building materials industry with cement production expected to double to more than 90 million tonnes a year by 2010.

While existing cities and communities are already seeing major developments there is also an intense focus on the $150 billion worth of government sponsored investment that has been committed to new cities due to be built around a core of economic projects. All of the economic cities will feature major residential and commercial real estate developments. Around 1.5 million people are expected to move to the new cities in the medium term and three times as many by 2020.

The region’s big names are seizing the opportunity. Prince Alwaleed bin Talal al-Saud’s Kingdom Holding Company, following on from its towering Al-Faisaliah development, is planning multi billion dollar real estate investments in both Riyadh as well as Jeddah.

The government’s go ahead for construction of high-rise buildings in Jeddah is being seized upon by companies keen to develop sites overlooking the Red Sea.

Dubai’s Emaar Properties, apart from its involvement in joint ventures to build the Kingdom’s giant King Abdullah Economic City at Rabigh, is among a growing number of regional developers committed to residential developments in Saudi Arabia. These include the Al-Khobar Lakes and Jeddah Gate projects. The latter involves a $700 million investment to build 5,000 homes on the 5 million square foot old Jeddah airport site.

Dubai’s Damac properties has also decided to enter Saudi Arabia’s fast expanding property sector with plans for a 40 storey tower block development on Jeddah’s corniche. The intention is to establish a strong local presence in a number of Saudi cities Chief Executive Peter Riddoch says.

Major development of hotels and residential accommodation as well as new infrastructure development is also stimulating real estate markets in the pilgrimage cities of Mecca and Medina.

Source: International Property Directory

UK Islamic home finance

The Guardian newspaper in the UK describes in detail the different types of Shari’ah-compliant home financing available in the country. There were a few very interesting facts presented. First, a small minority of customers using the Shari’ah-compliant home financing are non-Muslims; currently about 2 percent of the Islamic Bank of Britain’s customers are non-Muslims who turn to Islamic home finance for ethical reasons. Second, and this may provide a way for Islamic banks to broaden their interest beyond the Muslim market, is that in some cases, Islamic home finance is cheaper than traditional mortgages.

“If you bought a property for £250,000 using a diminishing Musharaka plan from HSBC Amanah, you would pay around £1,553 a month (made up of £1,246 in rent and £307 in contribution payments to increase your share), based on the bank buying 90 per cent and you putting down a 10 per cent deposit. If you took out a conventional two-year fixed-rate loan with HSBC (at 6.29 per cent and with a £799 fee) on £250,000, you’d pay around £1,655 a month over 25 years.”

There are of course differences in availability and structure that could negate the difference, the development of cost competitive Islamic home financing is a good thing for the industry as it seeks to expand beyond its current niche role.

Source: ihiBlog

Sharia-compliant mortgages are here - and they’re not just for Muslims

Huma Qureshi explains the ins and outs of the Islamic home loan market

Imagine a mortgage lender who allows you to take all the increase in the price of your home when you sell, but is prepared to share any loss if the property has fallen in value. Such a deal may seem too good to be true in the current property market, but it is exactly what a handful of banks specialising in Islamic home loans are offering.

Islamic mortgages have been in the mainstream market in the UK for some years but it can often be difficult to get to grips with sharia-compliant financial products, which can seem confusing. In Islam, making money from money by charging interest is deemed unfair and is not permitted. So where do you start when choosing an Islamic mortgage?

There are three models of Home Purchase Plans (HPPs): Ijara, which means ‘lease’ in Arabic; Musharaka, which means ‘partnership’; and Murabaha, meaning ‘profit’. Depending on the model, the lender will levy rent or add profit to the amount you pay back instead of charging interest.

Read: Guardian.co.uk

London…Islamic Finance Capital

With potentials preceding other European rivals and friendly government policies, the British capital of London is positioning itself as a premier international hub for the booming Islamic finance industry. “If you want to talk to anyone about Islamic finance, and you’re not in the Middle East or Far East, you come to London,” Humphrey Percy, head of Bank of London and the Middle East, told the Financial Times.

Over the past few years, London has established a hub status in the field of Islamic finance. An increasing number of London banks are now offering Islamic banking services to borrowers and savers. There are four licensed wholesale Islamic banks - the only ones in the European Union.

Read: IslamOnline.net

ABN Amro plans retail Islamic services

ABN Amro Bank to launch retail Islamic banking services in the Middle East next year.

ABN Amro Bank is planning to launch retail Islamic banking services in the Middle East region by the second quarter of 2009 to meet the increasing demand for Islamic products in the region, according to a senior executive. ABN Amro would launch retail Islamic products within nine to 12 months after finalising preparations for Islamic services in the region. ABN Amro plans to accelerate the introduction of Islamic products during the next stage due to the increasing demand. “We plan to introduce between five and 10 new products every month. We expect to launch at least 30 new Islamic products during the second half of 2008.

The increasing Islamic deposits and the wealth generated in the Middle East region show great potential growth for Islamic banking services. Expectations are high that the Islamic banking sectors will grow by 30 per cent annually and ABN Amro expects its Shariah-compliant products to grow at least at the same pace.

Source: Islam Online

Edcomm Group Banker’s Academy assists startup Islamic Banks in the USA and provides worldwide training

The Edcomm Group Banker’s Academy has now supported several financial institutions in establishing an Islamic Banking presence in the United States. Whether the banks are new (de novo) entities providing only Islamic Banking, or existing banks that wish to establish an Islamic Banking Division, Edcomm Banker’s Academy is now the place to go for advice and assistance.

In order for Islamic Banks to be competitive with conventional banks and attractive to customers, Islamic financial products must meet the risk/reward profiles of depositors, investors and issuers, while at the same time following the laws of Sharia. Additionally, Islamic Banks must educate their personnel to understand the tenets of Islamic law that pertain to banking. Edcomm Banker’s Academy has created Islamic Banking Compliance to address these vital needs with Consulting, Documentation and Training.

The Edcomm Group Banker’s Academy is a 21-year-old multimedia education and communication consulting firm specializing in the development of creative business solutions that improve productivity, customer service and market share - providing bottom-line results. The Edcomm Group Banker’s Academy has had the privilege of assisting many distinguished clients with business solutions in the form of eLearning programs, classroom instruction, multimedia production and online and print based documentation. Edcomm Banker’s Academy offers many off-the-shelf and customized courses such as Teller Training, Compliance Training and Systems Training specifically designed for Banks, Credit Unions and Money Services Businesses (MSBs).

The Edcomm Group Banker’s Academy is headquartered in New York City with an Advanced Design Center located in Fort Washington, Pennsylvania.

Press Release

Edcomm Banker’s Academy met with Path Solutions, the leading provider of software for Islamic Banking to discuss the training needs of Islamic Banks. Path Solutions is a leader in the delivery of integrated solutions and services to the financial marketplace. They offer a comprehensive range of software products, outsourcing and consulting services that address the whole spectrum of the global finance industry and specifically, the Islamic Finance Industry.

Islamic finance explained

The Islamic finance industry is worth about $800bn globally and is growing at an annual rate of 10 to 15 per cent. The sector’s dramatic growth since 2000, when it was worth $150bn, and profusion of investment products has been fueled by an increasing desire by Muslims for investments that comply with Islamic law. Demand has also been triggered by the big increase in wealth in the Gulf, where growth has doubled since 2002 on the back of the soaring oil price.

FT.com interactive feature explores the main Islamic financial instruments, the key players and where the industry is heading.

Islamic Finance Bubble ?

“It strikes me that as impressive as the growth has been in the past seven years, it corresponds rather precisely with the big Gulf boom driven by hydrocarbon prices. There is much loose talk of huge new Muslim markets, counting up the global number of Muslims - African, Asian, etc. - as potential market numbers (see the articles here). This, like your average “MENA” but really Gulf Fund, playing with regional numbers to inflate potential is utter bollocks. Much boosterism comes from the Gulf, and more from City bankers with a thin understanding of the variations in the Islamic world and the extent to which poorer markets with more liberal approaches to Islam are going to be genuinely willing to pay a premium for services (or be exposed to more risk - although that is more likely to be disguised). Perhaps worth a further discussion, but it strikes me that Islamic finance growth right now is intimiately and almost uniquely driven by asset inflation in the Gulf, that makes everything look attractive.”
The Lounsbury, “Aqoul”

Pakistan: Meezan Bank launches working capital solution

Meezan Bank Limited has launched a new finished goods Islamic financing facility called Meezan Tijarah. The facility is available to SMEs and commercial/corporate customers seeking Shariah compliant working capital financing solutions. Meezan Tijarah would facilitate the customers that sell finished goods on a credit basis. The product can be used for providing financing facility in transactions where final / transformed goods are available for sale.

The facility will enable the customers to sell their finished goods, meet their working capital requirements and enjoy the benefits of cash sales. It is available for trading and manufacturing concerns and can also be used to facilitate customers to convert their interest based financing facilities to Islamic banking.

Read also: Meezan Bank Pakistan, The Premier Islamic Bank