Conventional and Islamic finance of home purchase : house financing structure through establishing a company

السؤال

Dear Amo Monzer, In Sha Allah you and your family are well and in the best of conditions ! I am e-mailing you today because my older brother Bilal, has come up with an interesting idea of how one could possibly structure an Islamic home financing contract in a way that is not only compliant with the tenets of Shari’ah, but which also does not render investors or those seeking Halal financing at a financial disadvantage (in the specific context of German law). I would very much appreciate your opinion on the Islamic validity of such a contract or arrangement. For in case it is sound, it should not be too complicated to set up dedicated real estate investment funds based on this structure, and one would have found a way to serve the yet unmet demand for Islamic house financing in Germany. In short, one of the core problems of having an Ijarah-like house financing in Germany is the fact that with each sale transaction of a real estate property, the government demands the payment of a property tax. Thus, if an investor wants to buy a house and then gradually sell it to the person seeking the financing (while at the same time receiving rent payments for his share of the house) one would have to pay the property tax twice. The idea that Bilal has come up with, and which according to German law would not make the double payment of the property tax compulsory, goes as follows : 1) An investor (private person or legal entity) and a private person enter into a partnership and found a private company. The purpose of the private company is to buy the house that the private person wants to buy and seeks financing for. 2) The investor and the private person supply this company with the capital that is needed to buy the house (for legal reasons, the private person would need to supply at least 5,1 % of the capital). 3) This private company buys the house that the private person wants to buy and needs financing for. If we assume that the private person has supplied 5,1 % of the capital to the private company which now owns the house, and the investor has supplied 94,9 % of the capital to the company that now owns the house, then the shares of both investor and private person in the private company effectively also constitute shares in the house. 4) The private person would then rent the house from the private company for a pre-defined duration (say, 20 years). The rent would be the regular market rent. The private company would the distribute the income from the rent to its shareholders (e.g., in this case, in the beginning, that would mean 5.1 % of the rent goes to the private person, and 94,9 % of the rent goes to the investor). 5) At the same time, the private person and the investor agree on a plan whereby the private person gradually buys the shares of the investor in the private company, say over a time period of 20 years in monthly installments. After 20 years, the private person would fully own the private company which owns the house, and thus the private person becomes the sole owner of the house. Using this structure, we have several contracts : 1) The contract for the foundation of the private company (where private person and investor supply a certain share of capital each). 2) The contract whereby the private company buys the house. 3) The contract whereby the private person agrees to rent the house for a pre-defined time frame. 4) The contract whereby the private person agrees to buy off the shares of the investor in the private company that formally buys and owns the house. All four contracts would have to be signed simultaneously. Of course, there are much more details to consider, for instance, as to what would happen in the case of bankruptcy, how the rent is determined, etc... However, before enlarging on such details I wanted to kindly ask you for your general opinion on this matter, especially on whether you think that such a structure is in line with Islamic law. In case you think it is, Bilal and me would develop a more sophisticated model that is thought through both from a legal and a business perspective. As per our current understanding, from a tax, legal and business perspective, such a structure is perfectly competitive and does not entail any significant financial disadvantage to any of the parties that are involved in such a transaction. I would highly appreciate your opinion on this subject matter, and thank you in advance for your help and consideration. In case you have any queries, please do not hesitate to let me know. Jazakumu Allahu Khayran Al-Jaza’ for your kind advice ! I am very grateful for your guidance ! Baraka Allahu Fiekum and my best Salaams to the family, Wassalam Alaykum Wa Rahmatu Allahi Wa Barakatuh, Annas

جواب الفتوى

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تاريخ النشر

2009-05-03

التخصصات الرئيسية

العلوم المالية و المحاسبية
الدراسات الإسلامية

الموضوعات

• الفقه الإسلامي
• الشراء
• الشركات
• الممتلكات العقارية
• الرهن العقاري

عدد الصفحات

3

نوع البيانات

فتاوى

لغة النص

الإنجليزية

رقم السجل

BIM-734880

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