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Exploring Islamic Mortgage Products in the U.S. Real Estate Market

This comprehensive analysis discusses the various Islamic mortgage products available for residential and commercial properties in the U.S. These include unique financing structures like Murabahah and Ijarah, tailored for foreign acquisitions and investment. We evaluate market demand, the significance of being "Islamic," and the regulatory and legal challenges that impact product structuring. Key consumer issues such as pricing, risk-reward comparisons, and liquidity challenges are addressed to provide insights into the evolving Islamic finance landscape.

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Exploring Islamic Mortgage Products in the U.S. Real Estate Market

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  1. Islamic Mortgage Products • Islamic Finance Forum • UC-Berkeley School of Law Umar F. Moghul 860.240.6103 | umoghul@murthalaw.com April 9, 2011

  2. Islamic Real Estate in US • Mortgage Products (Residential, Commercial) • Foreign Acquisitions (Funds and One-off)......But domestic products?

  3. Foreign Activity • Buyers: investment banks, investment companies, family offices • Properties: multifamily, warehouse/ distribution, medical office • Acquisition Financing: murabahah or ijarah mortgage financing; non-standardized

  4. 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

  5. Product Structuring • Business Issues: • Consumers (“Islamic-ness”, interest deductions, deed, and conventional comparisons: pricing & risk-reward) • Liquidity • Legal Issues: • Leverage alternative • Documentation

  6. Market Success… • Establishment  Product Design  Market Demand and Marketing  Origination  Sales  Liquidity • But if sales are poor……

  7. 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

  8. Market Structures • Murabahah (Cost plus Mark-up): • Form vs substance – Who decides? • OCC Letter Ruling/ Regulations and business customs • NYS Tax ruling • Liquidity challenge

  9. Market Structures • Ijarah (Finance Lease): • Ownership • Form vs substance – Who decides? • OCC Letter Ruling/ Regulations and business customs

  10. Market Structures • Musharakah (Diminishing Partnership): • Unchartered Territory • No OCC Letter, but Illinois... • PLS Sharing - Market Perceptions • Negative Equity?

  11. Umar F. Moghul • +1 860 240.6103 • umoghul@murthalaw.com www.murthalaw.com

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