News Report Islamic Real Estate Investment Trust (Islamic REITs) Source : A challenge to Muslims Shahrom Ariffin, January 28,2006 Property Times, The News Straits Times Presenters Zakariyah Shamsuddin Azrul Hisham Md Isa Mohd Azmi Jaafar Mohd Hilmi Hithir z

Outline Introduction What is REITs? Structure SAC Requirements Shariah Principle Use for the Fund Establishment Issues z

What is a REIT? Objective? A REIT is a collective investment Scheme constituted as a real estate investment trust that invest primarily in income –producing real estate and real estate related assets and uses the income from the properties, net of expenses, to provide returns to its unitholders Objective? To provide unitholders with stable distributions per unit with the potential for sustainable long-term growth of such distributions z

Structure A

Shariah Advisory Council Requirements for Islamic REITs Any income derived from the buildings injected to the REIT should be Shariah compliant Not more than 20% of rental income are from non-Shariah compliant activities Benchmark Level However, an Islamic REIT is not permitted to own real estate, e.g, Casino, Hotel, Financial Services based on riba and etc. This is to protect the image of Islamic REIT A

AJ

AJ

Issues The trust is merely a tax advantage tool used to convert an asset to cash. Hence, there are no real Islamic issues in REITs. REITs is the tax transparency and exemption on dividends. Will Islamic REITs offer such similar benefits, since rental income be subjected to zakat, both owner and investor levels? Two separate accounts would have to be managed for Islamic REITs having tenants engaged in permissible and non-permissible activities. One account will be for rental income from non-permissible activities, which is for that received from tenants operating non-permissible activities. The money from this account has to undergo “purification” by being passed to a qualified Islamic charity (Sadaqah). H

“Allah Knows Best” Thank you