Examining The Malaysian Shari [ah Guidelines for Islamic REITs

In November 2005 the Shari[ah Advisory Council (SAC) of the Securities Commission in Malaysia outlined basic guidelines to facilitate the establishment of an Islamic real estate investment trust (Islamic REIT). It clarified that those guidelines were not applicable to real estate used for residential purposes. Rather, they were applicable to rental of Real Estate by Islamic REIT for business purposes. This paper is an effort to examine and review theses guidelines as they, along with similar guidelines in other Muslim countries, have been deemed controversial by some Shari[ah observers. These guidelines contain four main points: (1)-Acquiring real estate with existing tenants. (2)-Renting out real estate to a new tenant. (3)-Insurance in Islamic REITs. (4)-Forward sales or purchase of currency for risk management in Islamic REITs. For brevity purpose, this paper limits the discussion to the first two points as they are deemed to be encompassing more controversial issues than the other two.