Thursday, September 18, 2008

Global credit crunch prompts property developers to consider Islamic financial instruments

With global credit crisis being noticed everywhere in the tough financial world, several property developers in the GCC are turning to Islamic financial instruments for getting a good start for their projects.

According to Swati Taneja, Conference Director of International Islamic Finance Forum, financing carried out as per Islamic rules emphasizes that gains should be derived from ethical, shared investment, rather being interest-based, and hence, this has sidestepped the credit crunch.

The International Islamic Forum, usually held twice a year, will be conducted in Istanbul from 13th to 17th October this year.

The slowdown in the international property market has hit conventional property firms, as investors have begun to scale back their exposure, particularly in highly leveraged markets,Swati said.

There are several instances of emerging developers worldwide adopting the Islamic model to finance their projects. The most recent among these is the biggest property developer of South East Asia, based in Singapore, which is expected to issue $700mn Islamic bond towards end of this year, as the first portion of investment, targeting the Middle East investors.

Taneja pointed out that there are only few competitive sources of finance available in the conventional financial world right now, but, there are several billions of dollars in the Islamic financial sector of the Middle East, seeking investments. However, unless developers plan their projects to be Shariah compliant, they will remain unnoticed.

In recognition of the high competitive alternative offered currently by Islamic finance to the conventional interest-based structures, the forum this year focuses on a special workshop about Islamic real estate deals.

The workshop will offer better understanding of Islamic finance and structures required for real estate development, and will examine the foundation of Islamic finance, and its applicability for real estate transactions.

The forum will identify new markets for Islamic finance and examine Sukuk structures and capital markets, Islamic jurisprudence, emerging Takaful development, alternative asset classes including private equity and real estate, and sustainability with greening of Islamic finance.

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