Looking to invest in real estate investment trusts (REITs) but you’re unsure if it’s Shariah-compliant?
Or perhaps you’re not sure how to choose a halal REIT?
Don’t worry.
In this post, I will go through whether REITs are halal, how you can go about choosing halal REITs, and the best halal REITs that you can consider!
Continue reading.
Firstly, are REITs Halal?
REITs are an investment tool that initially became very popular amongst Singaporeans and Malaysians.
These can be both halal or haram.
A REIT is halal only if all Islamic principles are considered from start to finish. There should be no haram dealings involved either before or after.
If the investment is purely halal and no haram activities take place on the property, it can be considered halal.
However, if a property in the REIT has been set up using interest or haram revenue, then the entire REIT will be considered haram. For example, a Hotel REIT will be considered haram if alcohol is served on the premises.
Muslims should not invest in such REITs as the return will be haram income.
How To Choose Halal REITs?
A Shariah-compliant or halal REIT adheres to the Shariah Principle in the Capital Market.
For a REIT to be halal, it must not breach any principles or rules set by Shariah.
For example, a factory estate REIT is Shariah-compliant if halal products are manufactured in the area.
Also, the transactions must be done Islamically. It is crucial that no interest or haram loans have been taken. Once all these are checked, the factory REIT will make it to the Shariah-compliant Securities List.
I covered more on how to choose halal investments here.
Steps To Choose A Halal REIT
Step 1: Find the source of revenue
A Shariah-compliant REIT will have a halal source of revenue. This is mainly the rent paid by tenants or profit gained by selling off land or property.
Always thoroughly check and evaluate the total income of a REIT. It should mainly be Shariah-compliant revenue and only include profits. Non-compliant revenue must not exceed 5% in total.
Step 2: Check For Total Debt
If the total debt exceeds 33%, a REIT will not be considered halal. Many companies take loans to back up financing, but debt should not be a considerable part of their assets.
Step 3: Check For Interest
The total revenue generated from interest should not exceed 33%. You can calculate this by adding all cash and interest profits and dividing the answer by the total number of assets.
Prohibitions In Halal REITs
- Only Shariah-compliant hotels and resorts are acceptable.
- Riba-based services are discouraged.
- Insurance policies are a big no.
- No alcohol, tobacco, or drugs must be used or served on the premises.
- Gaming, gambling, selling/buying haram products and services nullify a halal REIT.
7 Best Halal REITs To Invest In
In this section, we will look at the best Halal REITs you can choose from. We will also discuss why certain halal REITs made it to our list, their benefits and other important information.
1. Al-`Aqar Healthcare REIT – Malaysia
- Type of REIT: Healthcare REIT
- Dividend Yield: 6.72%
The Al-`Aqar Healthcare REIT is also known as Al-`Aqar. This REIT tops our list of halal REITs because it is the first-ever Shariah-compliant REIT.
This REIT was initially listed on the Main Market of Bursa Malaysia Securities Berhad.
Once listed on the 10th of August in 2016, this REIT came to be known as Asia’s first Islamic Healthcare REIT.
The establishment of the Al-`Aqar Healthcare REIT helped even more REITs pop up in Malaysia. Initially, the REIT was based on 6 properties. Today, it has grown to 23 properties that include 17 hospitals, 3 health centres, 2 colleges and a retirement village.
DRMSB, the manager of this REIT, is owned by Johor Corporation. KPJ Healthcare Berhad further supports them.
2. Al-Hadharah Boustead REIT – Malaysia
- Type of REIT: Industrial REIT
- Dividend Yield: 5.5%
Al-Hadharah Boustead REIT is another REIT based in Malaysia. This one is different from the first as it targets funds based on income generation and growth.
Boustead REIT Managers Sdn Bhd is the manager. They invest in plantation properties and mills. This allows the investors to have a uniform income distribution that yields an excellent net asset value or NAV in the long run.
In December 2009, the Al-Hadharah Boustead REIT consisted of 10 palm oil properties and two mills that manufactured palm oil in Malaysia. The area covered by these properties was 16,404 hectares.
Al-Hadharah was privatised by Boustead Plantations Bhd, which bought the REIT for RM664.8 million.
This was the first REIT to be privatised through SUR or selective unit redemption. The company slowly started gathering industrial, pharmaceutical, shipping yards, trading and investment REITs.
3. Axis Real Estate Investment Trust – Malaysia
- Type of REIT: Commercial REIT
- Dividend Yield: 4.89%
This is also one of the first few Islamic REITs listed under Bursa Securities. Axis-REIT was launched on the 3rd of August in the year 2005.
The establishment has nearly 60 properties today. These are based in the cities of Klang Valley, Negeri Sembilan, Pahang, Kedah, Johor, and Penang
The Axis-REIT focuses mainly on industrial properties, warehouses, and offices. The management hopes to grow and increase profits in the long run. The manager of this REIT is Axis REIT Managers Berhad. It is also licensed under the Capital Markets and Services Act of 2007.
Axis-REIT mainly offers three services to investors. This includes leasing, acquisitions, and built-to-suit. This means that you can either lease a property, purchase one, or get one built according to preference.
4. KLCC REIT – Malaysia
- Type of REIT: Commercial REIT
- Dividend Yield: 5.2%
KLCC REIT is also based in Malaysia. It is one of the largest real estate trusts for investments. KLCC REIT is also a part of KLCCP. Both of these together form the most essential staple security in Malaysia.
This halal REIT focuses on real estate dedicated to offices and retail shops. KLCC REIT was founded on the 2nd of April in the year 2013.
The KLCC REIT is registered with the Securities Commission (SC). The deed for this was penned down on 9th April 2013. This Fund is also listed on the Main Board of Bursa Malaysia Securities Berhad.
The KLCC REIT hopes to offer stable and uniform profits to investors by creating unique capital structures.
The two main investment strategies offered by KLCC REIT include active asset management and acquisition growth. The fascinating part is that this REIT covers the famous Twin Towers in Kuala Lumpur!
5. Al-Salām Real Estate Investment Trust – Bahrain
- Type of REIT: Commercial REIT
- Dividend Yield: 4.89%
Al-Salām REIT is a Shariah-compliant REIT launched by the Al-Salām Bank in Bahrain. The REIT properties that come under this bank are spread across Malaysia.
This, too, was able to get itself listed on the Main Market of Bursa Malaysia Securities Berhad. Al-Salām REIT achieved this milestone on 29 September 2015.
In 2015, 31 properties fell under the REIT. Soon, it crossed 54 properties based in Malaysia. These include 3 shopping malls, 43 restaurants, 7 non-restaurants and an office building.
The manager of Al-Salām REIT is Damansara REIT Managers Sdn Berhad. It is also a subsidiary of Johor Corporation Group.
A Shariah advisory committee ensures that all REITs are Shariah-compliant and entirely halal. Damansara REIT Managers Sdn Berhad is licenced under the Capital Markets and Services Act of 2007.
6. Sabana Industrial REIT – Singapore
- Type of REIT: Industrial REIT
- Dividend Yield: 5.63%
Sabana Industrial REIT was previously known as the Sabana Shari’ah Compliant Industrial REIT and was established in Singapore.
It was listed on SGX-ST on the 26th of November in 2010. The REIT focuses primarily on large buildings to generate income and profits. It also focuses on industrial properties.
Sabana Industrial REIT has nearly 18 different properties in Singapore. These include tech industries, warehouses, logistic facilities and general factories. The Sabana Industrial REIT falls under various indexes that include SGX S-REIT, MSCI Singapore Micro Cap, and FTSE ST Singapore Shariah.
The manager of Sabana Industrial REIT is Sabana Real Estate Investment Management Pte. Ltd. A trust deed was established on 29th October 2010, following the laws of Singapore.
The trustee for Sabana Industrial REIT is HSBC Institutional Trust Services (Singapore) Limited. They are responsible for authorising proposals by the manager and Collective Investment Schemes.
7. Emirates REIT – Dubai
- Type of REIT: Commercial REIT
- Dividend Yield: 7.51%
The Emirates REIT was launched in 2010 by the Dubai Islamic Bank and many other investors, including Tecom and Dubai Properties. This REIT was the first to be listed in the Gulf on 8th April 2014. It was listed on Nasdaq Dubai in DIFC.
The REIT quickly accumulated USD 400 million via a Sukuk in December of 2017. Over time, the REIT accumulated USD 723 million worth of assets.
The Emirates REIT is the largest halal REIT in the United Arab Emirates. The REIT has a licence issued by the DFSA and is also a part of the DIFC.
The types of properties and real estate that fall under the Emirates REITs include commercial buildings and education centres. This REIT aims to provide investors with a steady and safe income.
The total number of properties that fall under this REIT is 11. They amount to an area of nearly 2.4 million square feet. An efficient management board and team are responsible for taking care of the REIT.
Conclusion
That’s about it! These are currently the best halal REITs available for you to pick from.
I hope this article was clear in articulating how you can determine whether a REIT is Shariah-compliant.
If you’re sure of the above choices, you can buy them from a good investment platform that has access to the above markets.
Should you need help investing, it’s always best to engage a financial advisor to help you with your investments.
