Know How Halal Real Estate Can Be Your Investment Alternative

What is halal real estate investment?

Housing must be the first idea that comes up in your mind when you think about real estate investment. However, real estate investing is not always about putting your money for a physical property then profit from it. There are several ways to invest in real estate. Moreover, if you want to invest sustainably and ethically, then halal real estate is a good alternative.

Introduction to halal real estate investing

Real estate or property investing is buying the property to make a profit through rental income and/or future property sales.

Shariah-compliant or halal real estate investing is different from traditional real estate investing. To adhere to Shariah’s requirements, the property should not be used for impermissible activities. Shariah advisors of financial authorities or organizations have ruled such prohibited activities. For example, Securities Commission Malaysia categorizes hotels, resorts, rentals received from Shariah non-compliant activities as prohibited businesses.

Halal real estate investing alternatives

Over the last 50 years or more, real estate investing has been a popular investment instrument. Here are some options for you if you want to invest in halal property.

  • Rental properties

You can be a landlord by investing in rental property. However, as a landlord, you will be responsible for things like paying the financing (must be Shariah-compliant financing), property taxes, takaful, property maintenance, finding tenants, and dealing with any rental issues. If you are comfortable handling those responsibilities, then you are good to go. However, you can hire a property manager to handle such tasks for you.

  • Islamic REITs

Islamic Real Estate Investment Trusts (i-REITs) is a company or a trust that collects investors’ money to purchase, operate, manage, and sell income-generating property that complies with Shariah’s requirements. Just like stock and exchange-traded funds (ETFs), REITs can be traded on major exchanges.

Unlike conventional REITs, Islamic REITs must appoint Shariah advisors or committee to monitor its conformity with the Shariah rules. To be classified as a REIT, the firm must distribute 90% of its taxable profits to shareholders in the form of dividends.

REITs invest in a wide range of properties, including malls, healthcare facilities, mortgages, and office buildings. REITs have the advantage of being very liquid when compared to other types of real estate investments.

Why invest in halal property

The rule of thumb of halal real estate is basically to adhere to Shariah principles. The objective of Shariah guidelines is to promote social values and good governance. Like other halal investments, halal real estate investment is an ethical and sustainable investment for everyone (Muslims and non-Muslims). If you are an investor that upholds social values, then investing in halal property will be a good choice.

Furthermore, the real estate market has low volatility compared to other instruments like stocks and bonds. Other benefits that you will get when investing in real estate include;

  • Diversification strategy
  • Inflation hedging,
  • Economic of scale

Besides, real estate is not as liquid as stocks and bonds, which you can complete the transaction in seconds. In real estate, it is relatively difficult to convert the property into cash and vice versa.

Halal real estate investment would be a good investment for you as long as you have a realistic expectation. Be sure you understand its benefit and consequences before making an investment decision.

Halal investing is like socially responsible investing, which demands social values and good governance by screening out businesses that engage in activities that are considered unethical, such as gambling, alcohol, pork, weapons

Halal investment is an ethical and sustainable investment available for Everyone

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