Islamic real estate and housing finance continues unabated seemingly oblivious of the effects of the scandal surrounding the UK mortgage lender Northern Rock and the credit crunch precipitated by banks, including Northern Rock, chasing high returns by buying complex securities based on loans in America's dodgy “sub-prime” mortgage market, which has collapsed and is riddled with a lot of bad debts
But is an 'Islamic Northern Rock' scenario possible? That an Islamic mortgage lender could get into trouble is possible. No bank - whether conventional or Islamic, major or minnow - is immune to the shortcomings of the market.
The rate at which Islamic real estate and housing finance is increasing, is both breathtaking and concerning. In the GCC states, for instance, Islamic banks have an unusually high exposure to the real estate sector and the signs are that this situation will continue at least in the medium-term. Analysts are predicting a modest market correction but not a meltdown.
These are some of the pertinent and timely issues that will be discussed at this year's Islamic Real Estate Finance (IREF 2007) conference, which will be held on 6 th and 7 th November 2007 at the Royal Horseguards Hotel, Whitehall in Central London and which is organised by ICG Events. For more information visit the event website at www.islamicrealestate.com
www.islamicrealestate.com
In the UK, the Islamic mortgage market is set to pass the GBP1 billion mark by 2010. In Malaysia, residential property finance dominates the broad property finance market. Elsewhere the potential is eminently emergent - the EU, South Africa, North America, Australia, Indonesia, Turkey etc.
US, Australian and Middle Eastern investors were the most prominent private capital investors into the global real estate market in 2006, whose emergence as a mainstream global asset class was further confirmed during the year.
According the latest report by UK-based international property consultants DTZ titled 'Money into Property', estimated global real estate transactions hit a record high of $600 billion in 2006 - up 25% on 2005 and a staggering 150% on 2004.
The UK real estate market had another record year in 2006 . The West End of London, in particular, has benefited from investments from wealthy Middle East investors and financial institutions, who, according to DTZ, are typically equity buyers and are often willing to accept lower yields, looking primarily for wealth protection from their property investments. Private, equity, REITS, public equity and private debt all will be drivers of the UK real estate market in 2007.
However, Middle East and Islamic investors are always on the look out for new asset classes in the real estate sector chasing more value-added yields. In the UK regional development authorities; municipalities especially in the large metropolitan cities; utilities, especially transport and communications buildings; student accommodation; nursing homes; sports facilities; and the new City Academies offer exciting potential for the above investors.
Even the London Olympics 2012 could be an ideal vehicle say for Sukuk issuance backed by some of the Olympic assets such as the athletes' village, provided it is backed by the UK government and the pricing is decent.
With the current credit crunch in the conventional banking sector, Western banks should seize the opportunity of increasing their exposure to leveraged financing in Islamic real estate transactions. Institutions such as RBS, Nationwide, Fortis, Areal, HVB, RTZ, Deutsche, Bank of America etc. have in the past provided secondary and mezzanine Ijara financing for Islamic real estate transactions in the US, UK, EU, the GCC and Malaysia.
In this respect this conference is imperative also for all those allied businesses serving the real estate sector - the contractors; law firms; surveyors; property consultants; engineers; financial advisers; fund managers; housing officers amf architects to name but a few.
Islamic mortgage securitisation, similarly is nascent but the potential is huge. Theoretically, Islamic mortgage securitisation, like any other transaction or contract, requires full transparency otherwise the element of gharar will persist, which is definitively proscribed by the Shariah (Islamic Law). As such, a Northern Rock situation should not be feasible because investors would clearly identify the asset pool in which they are investing. Islamic investors are just as, if not more discerning about asset quality as conventional investors.
Take for instance, the largest Islamic mortgage securitisation to date the RM2.1 billion Cagamas Musharaka Sukuk issuance. The asset pool was a bundle of Islamic mortgages related to Government-owned residential units for Malaysian civil servants living in Putrajaya, the new administrative capital.
Image : Seri Wawasan Bridge Putrajaya
This transaction effectively carries a sovereign guarantee; and from an administrative and collection point of view is captive, in that monthly payments are subtracted at source from the salaries of the participating civil servants.
The good news is that Cagamas, the state-owned Malaysian Housing Finance Corporation, has a pool of some RM70 billion worth of Islamic mortgages waiting to be securitised. As such financial institutions should be forming a long queue outside the HQ of Cagamas pitching for the next major securitisation mandate.
In July also, Emirates National Securitization Company (ENSEC) in structured a US$210 million asset-backed issuance of notes on behalf of Tamweel, a leadi ng provider of Islamic residential real estate finance in the UAE.
In Saudi Arabia, a mortgage law is imminent which will pave for a more active participation of banks and companies such as the newly-incorporated Saudi Home Loans Company (SHLC), whose mandate is to provide Shariah-compliant residential mortgage and commercial property finance.
Given the huge liquidity in the GCC, estimated at US$1.2 trillion, of which most is held by Saudis, and the young demography of the GCC where 65 per cent of the population is under 20 years old, the mortgage market is set to burgeon over the next few years as more young families come on to the market.
The International Finance Corporation (IFC), the private sector funding arm of the World Bank Group in Washington DC, is a shareholder in SHLC together with Riyadh-based Daar Al-Arkan Real Estate Development Company, Arab National Bank and Kingdom Installment Company. In fact, Michael Essex, Head of Middle East & North Africa at the IFC, will give a keynote address at IREF 2007 on the issue of delivering sustainable home ownership through affordable private sector housing finance.
Given the huge opportunity and potential that the issues presented above the Islamic Real Estate Finance (IREF 2007) conference theme reflects a two-pronged approach to real estate finance. The first day, the 6th of November 2007 is dedicated to 'Islamic Housing Finance - Demand, Developments and Delivery' and the second day, 7th of November 2007 covers 'Islamic Real Estate Finance - Market Trends, Opportunities, Performance.' All those interested in Real Estate and in accessing the huge potential that the Islamic Finance and Real Estate Sectors offer should not miss the opportunity to network and forge new business relationships at the fourth in the series of succesfull IREF events.
To avoid dissapointment and to ensure that your place is reserved, please click on the link bellow to register.
Click to Register....
