Islamic Mortgage Products Islamic Finance Forum UCBerkeley School
Islamic Mortgage Products Islamic Finance Forum UC-Berkeley School of Law Umar F. Moghul 860. 240. 6103 | umoghul@murthalaw. com April 9, 2011
Islamic Real Estate in US • Mortgage Products (Residential, Commercial) • Foreign Acquisitions (Funds and One-off). . . But domestic products?
Foreign Activity • Buyers: investment banks, investment companies, family offices • Properties: multifamily, warehouse/ distribution, medical office • Acquisition Financing: murabahah or ijarah mortgage financing; non-standardized
Islamic Residential Market • Market Demand: ¡ What does it mean to be “Islamic”? ¡ And who decides? • Market Supply: ¡ Domestic – E. g. , Guidance, University Bank ¡ Foreign – E. g. , HSBC, UBK
Product Structuring • Business Issues: ¡ ¡ Consumers (“Islamic-ness”, interest deductions, deed, and conventional comparisons: pricing & riskreward) Liquidity • Legal Issues: ¡ Leverage alternative ¡ Documentation
Market Success… • Establishment Product Design Market Demand Marketing Origination Sales Liquidity • But if sales are poor……
Leverage • The Prohibition of Riba • Prohibited to charge/ earn interest, or any other benefit, in a loan transaction • Loans constitute charity, not profitable activity • Prohibited to charge default penalties, except perhaps costs incurred
Market Structures • Murabahah (Cost plus Mark-up): ¡ ¡ Form vs substance – Who decides? OCC Letter Ruling/ Regulations and business customs ¡ NYS Tax ruling ¡ Liquidity challenge
Market Structures • Ijarah (Finance Lease): ¡ Ownership ¡ Form vs substance – Who decides? ¡ OCC Letter Ruling/ Regulations and business customs
Market Structures • Musharakah (Diminishing Partnership): ¡ Unchartered Territory ¡ No OCC Letter, but Illinois. . . ¡ PLS Sharing - Market Perceptions ¡ Negative Equity?
• Umar F. Moghul • +1 860 240. 6103 • umoghul@murthalaw. co m www. murthalaw. com
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