Islamic Real Estate Practice

Islamic Real Estate in Practice (i-REITs)

By: Prof. Dr. Mohd. Ma’sum Billah masum2001@yahoo.com applied-islamicfinance@yahoo.com

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Introduction

There are many literatures that have addressed the topic of Islamic real estate from different dimensions and stages. Some have focused on the era of the Prophet of Islam, Muhammad s.a.w, when Islamic economic was fully and wholly operational, extending until the period of the four guided caliphs. Other writings looked at the application of Islamic real estate during the golden era of Islamic renaissance in the Abbasid Caliphate. Of course, there are also studies on the modern Islamic real estate that was applied in the Ottoman caliphate.

For simplicity, it would appropriate to adopt a comparative approach, also called the modern approach to the definition of Islamic real estate. This approach is structured and identifies common measurable characteristics to most real estate.

Accordingly, this assignment will be confined to the following main sections: a) Definitions of Real Estate. b) Factors that influence Islamic real estate. c) The main characteristic/ elements of Islamic real estate. d) Outcomes of Islamic real estate. e) Performance criteria for Islamic real estate.

REAL ESTATE Estate, in law, the degree of interest or ownership that a person has in property. The term estate is also used in a more general sense to denote the whole property possessed by an individual, for example, the estate of a deceased person. Sometimes debts are also included in this wide meaning, with all rights and duties regarded as a single entity. Estate in this sense of “the total belongings of a person” is divided into realty, or real estate, and personal estate.

Estates are classified into two types: freehold and nonfreehold. The freehold estates found in modern property law are the fee simple and the life fee. The fee simple estate is essentially absolute ownership of land, including the power to devise by will or to sell. The life fee estate is the right to control property during one's lifetime only; the grantor of a life estate designates the party who is to come into possession on the death of the life tenant. A freehold estate in fee tail, or entail, is a grant to a person and his or her descendants forever in a direct line.

The objective of entailing, which still exists in the United Kingdom, is to preserve family estates from division.

Nonfreehold estates for the most part are those established by leases of real property. Two common types are the estate for years and the periodic estate. In the former the right to occupy the realty terminates at a fixed time; in the latter the lease period is for a definite term that is renewed automatically if neither party signifies an intention to terminate the tenancy.

Today the term estate generally refers to property of every sort that is owned by an individual and that may be passed on to another at the owner's discretion. A deceased person's estate is disposed of according to law and to instructions given prior to death. An executor or administrator is responsible for carrying out the disposition of the estate.

Real Estate, in broad definition, land and everything made permanently a part thereof, and the nature and extent of one's interest therein. In law, the word real, as it relates to property, means land as distinguished from personal property; and estate is defined as the interest one has in property.

Real estate may be acquired, owned, and conveyed (or transferred) by individuals; business corporations; charitable, religious, educational, fraternal, and various other nonprofit corporations; fiduciaries, such as trustees and executors; partnerships; and generally by any legal entity as determined and defined by the laws of the various states of the U.S. Limitations are established in connection with sales of real estate by minors, incompetents, and certain types of corporations, and generally in cases involving some form of legal disability or lack of capacity.

In such instances, it is necessary in some jurisdictions to make application to the courts for permission to sell; in other jurisdictions such transfers are governed by statute.

Real property is generally acquired by purchase, by descent and devise, or by gift. When acquired by purchase, a deed is given by the seller, or grantor, to the purchaser, or grantee. The deed contains a legal description of the property conveyed; it must be drawn, executed, and acknowledged in proper form to be entitled to record. It is customary for the seller and the purchaser to enter into a contract, at which time the purchaser makes a deposit on account of the purchase price. The purchaser engages an attorney or a title company to search the title to the property.

The title company ensures that the seller can convey clear title. The transaction is then closed; that is, the property title is transferred and the balance of the purchase price is paid. See also Torrens System.

When an owner of real property has died intestate, or without leaving a will, title to the property is said to pass by descent to the heirs; when he has died testate, or leaving a will that has been probated, the property passes by devise to the person or persons so designated in the will.

Transfer of real property by gift, as, for instance, to churches, educational institutions, or fraternal orders, is easily accomplished merely by the execution and delivery of a deed.

The greatest and most extensive interest that may be acquired in realty is described in law as a fee interest, a term that implies a proprietary ownership, free and clear of conditions. Fee interest is the most common form of ownership; with certain exceptions, private homes, apartment buildings, factories, office buildings, and similar properties are owned in fee.

Condominium ownership, which was introduced in the U.S. in 1961 and has since been widely adopted, implies separate ownership of individual apartments or units in a multiunit building. The purchaser of a condominium becomes the owner of a particular unit and of a proportionate share in the common elements and facilities. The unit may be separately mortgaged; the owner pays taxes and a fixed monthly sum to maintain the common elements. In the sale of a unit, the seller executes and delivers to the buyer a deed conveying all right, title, and interest in and to the entire condominium as well as the particular unit.

Cooperative ownership, which on the surface seems similar to condominium ownership, is in fact quite different. In cooperative ownership, title to the multiunit building usually is vested in a corporation. The purchaser of an apartment or a unit actually buys stock of the corporation; in addition to a stock certificate, a cooperative member receives a lease to the apartment, in which he or she is named lessee.

As a holder of stock, each cooperative member has an ownership interest in the corporation, which in turn owns all the units and common areas. Each tenant pays to the corporation a fixed rent, which is applied to the payment of a single blanket mortgage and real estate taxes covering the entire building, and to the payment of insurance premiums and maintenance costs for the upkeep of the common areas and facilities, which each tenant uses in common with all other unit owners. In the sale of a cooperative unit, the seller surrenders his or her stock and lease to the corporation, which in turn issues a new stock certificate and lease to the purchaser.

The form and structure of cooperatives vary, and in some states are regulated by law Real estate or real property is land and the improvements made to land and rights to use them. Real estate may be acquired, owned, and conveyed (or transferred) by individuals; business corporations; charitable, religious, educational, fraternal, and various other nonprofit corporations; fiduciaries, such as trustees and executors; partnerships; and generally by any legal entity as determined and defined by the laws of the various states of the U.S.

Limitations are established in connection with sales of real estate by minors, incompetents, and certain types of corporations, and generally in cases involving some form of legal disability or lack of capacity. In such instances, it is necessary in some jurisdictions to make application to the courts for permission to sell; in other jurisdictions such transfers are governed by statute.

Real property is generally acquired by purchase, by descent and devise, or by gift. When acquired by purchase, a deed is given by the seller, or grantor, to the purchaser, or grantee. The deed contains a legal description of the property conveyed; it must be drawn, executed, and acknowledged in proper form to be entitled to record. It is customary for the seller and the purchaser to enter into a contract, at which time the purchaser makes a deposit on account of the purchase price. The purchaser engages an attorney or a title company to search the title to the property.

The title company ensures that the seller can convey clear title. The transaction is then closed; that is, the property title is transferred and the balance of the purchase price is paid. See also Torrens System.

When an owner of real property has died intestate, or without leaving a will, title to the property is said to pass by descent to the heirs; when he has died testate, or leaving a will that has been probated, the property passes by devise to the person or persons so designated in the will.

Transfer of real property by gift, as, for instance, to churches, educational institutions, or fraternal orders, is easily accomplished merely by the execution and delivery of a deed.

The greatest and most extensive interest that may be acquired in realty is described in law as a fee interest, a term that implies a proprietary ownership, free and clear of conditions. Fee interest is the most common form of ownership; with certain exceptions, private homes, apartment buildings, factories, office buildings, and similar properties are owned in fee.

Real Estate, in broad definition, land and everything made permanently a part thereof, and the nature and extent of one's interest therein. In law, the word real, as it relates to property, means land as distinguished from personal property; and estate is defined as the interest one has in property.

Real estate may be acquired, owned, and conveyed (or transferred) by individuals; business corporations; charitable, religious, educational, fraternal, and various other nonprofit corporations; fiduciaries, such as trustees and executors; partnerships; and generally by any legal entity as determined and defined by the laws of the various states of the U.S. Limitations are established in connection with sales of real estate by minors, incompetents, and certain types of corporations, and generally in cases involving some form of legal disability or lack of capacity.

In such instances, it is necessary in some jurisdictions to make application to the courts for permission to sell; in other jurisdictions such transfers are governed by statute.

Real property is generally acquired by purchase, by descent and devise, or by gift. When acquired by purchase, a deed is given by the seller, or grantor, to the purchaser, or grantee. The deed contains a legal description of the property conveyed; it must be drawn, executed, and acknowledged in proper form to be entitled to record. It is customary for the seller and the purchaser to enter into a contract, at which time the purchaser makes a deposit on account of the purchase price. The purchaser engages an attorney or a title company to search the title to the property.

The title company ensures that the seller can convey clear title. The transaction is then closed; that is, the property title is transferred and the balance of the purchase price is paid. See also Torrens System.

When an owner of real property has died intestate, or without leaving a will, title to the property is said to pass by descent to the heirs; when he has died testate, or leaving a will that has been probated, the property passes by devise to the person or persons so designated in the will.

Transfer of real property by gift, as, for instance, to churches, educational institutions, or fraternal orders, is easily accomplished merely by the execution and delivery of a deed.

The greatest and most extensive interest that may be acquired in realty is described in law as a fee interest, a term that implies a proprietary ownership, free and clear of conditions. Fee interest is the most common form of ownership; with certain exceptions, private homes, apartment buildings, factories, office buildings, and similar properties are owned in fee.

Land Often we think of land as only the surface of the earth. Actually, lands starts at the center of the earth, passes through the earth’s surface, and continues on into space. An understanding of this concept is important because, given a particular parcel of land, it is possible to ne person to own the rights to drill or dig below its surface and still another to own the rights to use the airspace above it. Land, in the law of real property, term including the surface of the earth, the land beneath the surface to the center of the earth, and the air above.

The term also includes property permanently affixed to the soil, such as water collected in wells, houses, and fences. The ownership of land may be classified according to the various types of interests, the principal of which are estates in fee simple, life estates, reversions, remainders, and leaseholds. In the U.S. a private owner of land on the shore of an ocean, tidal river, or navigable waterway may claim title only to the land above the high-water mark; title to land below that point is held by the state.

States may, however, sell or lease ownership to private persons. State statutes also regulate the use of land by the owner to conserve its natural resources. By the power of eminent domain, the government may take land from the owner for public use on payment of its reasonable value.

Land, in the law of real property, term including the surface of the earth, the land beneath the surface to the center of the earth, and the air above. The term also includes property permanently affixed to the soil, such as water collected in wells, houses, and fences. The ownership of land may be classified according to the various types of interests, the principal of which are estates in fee simple, life estates, reversions, remainders, and leaseholds. In the U.S. a private owner of land on the shore of an ocean, tidal river, or navigable waterway may claim title only to the land above the high-water mark; title to land below that point is held by the state.

States may, however, sell or lease ownership to private persons. State statutes also regulate the use of land by the owner to conserve its natural resources. By the power of eminent domain, the government may take land from the owner for public use on payment of its reasonable value.

Improvements: anything affixed to land with the intent of being permanent is considered to be part the land and therefore real estate. Thus houses, school, factories, barns, fences, roads, pipelines and landscaping are real estate. As a group, these are referred to as improvements because they Improve or develop land.

Being able to identify what is conveying ownership to a house, only the lot is described in the deed. It is not necessary to describe the dwelling unit itself, or the landscaping, driveways, sidewalks, writing or plumbing. Items that are not a part of the machinery, and the like, are classified as personal property; if the right to use them is to be transferred to the buyer, there must be a separate bill of sale in addition to the deed. Community Property, in law, possessions held jointly by a married couple.

Except for inheritances or gifts to either spouse, all property acquired by the husband or wife during the marriage is usually considered community property. This includes money, real estate, household furnishings, investment securities, automobiles, and other types of consumer goods that people have accumulated together. Property owned prior to the marriage and any income from such property remains separate and apart. Contractual agreements may also be made by the couple to allow them to maintain individual property.

In the past, marital property laws were biased in favor of the husband, who usually held title to the couple's major assets. In English common law, wives were unable to hold and dispose of property until about 1850, when various statutes were passed to protect the rights of married women.

At present the concept of community property is recognized under the laws of many states in the United States. In those states it is used to determine the division of possessions when a marriage ends in separation or divorce. Its purpose is to provide fair and equitable treatment for both parties.

FACTORS THAT INFLUENCE ISLAMIC REAL ESTATE The characteristic of most real estate are relative. That is, they are influenced and change totally with time and place. In the Islamic real estate, however, some elements within each characteristic have both permanent and changing features. The permanent features preserve the core belief and identify of the religion, while the changing features, which are mostly related to methods or application, make the religion relevant to all time and space. In ownership of property for example, Islam recognizes both private and public ownership of property (permanent feature).

But what you own and how you own it(application) is left to the art of time and space. This is unlike for example, socialism that had began as capitalism, then public ownership and currently, it is trying to reform again towards private ownership.

The main factors that influence Islamic real estate include: 1) historical and ideological background 2) Size and geography 3) Level of development 4) Political system

HISTORY AND IDEOLOGY. The core belief in the Islamic real estate remained constant basically because the sources of this belief-Al-Qur’an and Sunnah-have been preserved intact.

SIZE AND GEOGRAPHY The size of the country means the size of market and activities. Small countries have to maintain open economy to survive globally. In contrast, countries like China could afford to maintain closed economy due to its size. Meanwhile countries that geographically are open to waters enjoy more advantage to market than landlocked countries. LEVEL OF DEVELOPMENT Developed countries tend to use capital-intensive means of production and communication. This helps the real estate in terms of faster decision- making process, faster communication and thus high rate of efficiency.

Whereas low level of development is characterized by labor-intensive mode of production, red tape in bureaucracy, slow means of communication and low productivity. POLITICAL SYSTEM. Authoritarian political systems tend to have greater control on economic activities. There is also the likelihood of corruption, disincentive and low productivity. While transparent political system contributes positively to economic output and efficiency.