Shari’ah Compliant Real Estate Investment
MEA Finance, 2020/10/06
Sharia compliant real-estate investments are creating more options for portfolio diversification under the umbrella of Islamic Finance. Tim Haywood, General Manager and Regional Vice President at the Walton Group of Companies, a global real estate asset management company and Amanie Advisors, an Islamic Banking and Sharia Finance advisory consultancy, explains to MEA Finance how and why this opportunity is growing in the region.
What has been the driver behind Walton’s compliant offering? And how does your product stand out in the industry?
We have offered a Shariah compliant product for around 3 years, so we were already aware of the importance of the endorsement for the Islamic Finance markets where our product is offered. Following the restructuring of that product towards the end of last year, with a focus on cash flow generation for investors, it was important to ensure that the new model was also compliant. Over the same period of time, we established our first Middle East office, so we felt it was important to work with a globally recognized and respected Shariah Supervisory Company such as Amanie Advisors.
Walton is a market leading real estate asset management company, offering fully packaged land investment solutions, in partnership with publicly traded U.S. homebuilders, to deliver superior returns to investors with annual cash flow distributions.
Could you tell me more about your clients that are using your Islamic offering, and what kind of feedback have you received since the endorsement from Amanie Advisors?
Our clients are generally referred to us through Wealth Managers and distribution partners, so the Shariah endorsement has opened opportunities for those business partners to expand their potential client pool and offer an alternative real estate product to their clients. As the demand for Islamic finance products increases across our regions in the Middle East and South East Asia, we hope to be able to fill a gap in the alternative real estate investment area, thus providing a greater choice to investors who see the U.S. housing market as a significant investment opportunity.
The feedback since the endorsement has been very positive, and although the news has only just been released publicly, we are already receiving enquiries from different regions. Our business partners have seen the endorsement as a sign of our commitment to our expansion across all markets.
What key factors did the Amanie Shariah Supervisory Board take into consideration when endorsing this as a Sharia compliant investment product?
Ms. Maya Malek, CEO of Amanie Advisors points out that their Supervisory Board takes into consideration various factors when reviewing a particular product for Shariah approval. These include but are not limited to, fulfillment of all Shariah requirements and principles within the context of the product, adherence to international Shariah standards, alignment with market practices within the Islamic finance industry and sound legal documents which reflect the Shariah structure and requirements accurately. It is important for the product to be both Shariah compliant and commercially viable.
Why is this endorsement so important to Walton and why do clients in the Middle East choose to work with your organization?
Islamic Finance is a rapidly growing sector already worth approximately $2.4 Trillion globally, according to S&P Global Ratings. With a presence in South East Asia (Singapore) for over 25 years and clients in markets such as Malaysia and Indonesia, it was an obvious move to ensure that Walton’s offerings were available to the Muslim community. We opened our Dubai office in 2019 to support our business partners and clients in the GCC region and we felt that having the endorsement would further strengthen the appeal of our product range beyond the expatriate client base, and open a wider distribution network for our existing and new products.
Clients choose to work with Walton because of our unique way to research, acquire, structure, and exit near term development land investment projects, providing genuine asset diversification for their investment portfolio. Clients also recognize the strength of our strategic relationships with the largest national homebuilders in the U.S., providing investors with peace of mind as they seek to secure stable cash flow over the medium term.
How is this investment product expected to benefit investors and what are its advantages over other real estate / regional investments?
Our Exit Focused Pre-Development Land Investment (EFPDLI) product has been designed with cash flow generation in mind. Walton, in conjunction with third party real estate analysts, researches and acquires near term development land and immediately secures publicly traded homebuilder interest in the form of a signed Letter of Intent. Following the homebuilder due diligence period and the subsequent signing of an Option Agreement, investors benefit from annual cash flow distributions as the development lots are delivered to the homebuilder on an agreed, scheduled phased takedown. The U.S. residential housing market is experiencing significant growth, following a decade of recovery after the 2008/9 crisis, and Walton provides a unique opportunity for investors to participate and benefit from the growing demand for new, affordable homes, without having to become homeowners themselves.
Our product competes with the other Shariah compliant investments, such as the Islamic Sukuk market for example, which recently issued a 10-year Sukuk offering a 2.7% profit rate. We believe that our product can offer a significantly higher rate of return for investors that can complement their portfolio and provide diversification. With many GCC countries having currency pegs to the USD, investing in a USD asset removes the currency risk exposure they may face when investing in other markets or assets.
What are the biggest challenges facing your business this year? And what is your outlook for the last quarter of the year?
Undoubtedly the Covid-19 pandemic which has challenged most businesses but has also provided opportunities for others. Our focus is on the U.S. homebuilding industry which has been a definite bright spot within the U.S. economy. Homebuilding activity is extremely strong and in a historically low interest rate environment, homebuyers are seeking affordable housing in growth markets, which offer a larger, new home with work from home space incorporated. As a result, we believe we will have a strong final quarter and a significant pipeline of exit activity.
In terms of growing business in the region, what do you have planned next?
Just recently we have launched two new land investment products which are in the process of going through Shariah compliance review with Amanie Advisors. We hope that these will also receive their endorsement in the near future. We are committed to the Middle East and believe that with our three land investment products, we will cater to an ever-wider audience including HNWI, Wealth Managers, Family Offices and Institutional investors.