London Leads In Islamic Finance, Says Report

by Amanda Banks, Tax-News.com, London

22 July 2005

RICS (the Royal Institution of Chartered Surveyors) published a report this week saying that London has become a major centre for Islamic banking and investment, which is reckoned to be worth $500bn worldwide.

Based on research commissioned by international property consultants, King Sturge, the report says that London is securing its position as a major centre for Islamic banking and investment due to the availability of relevant expertise and a flexible, well developed regulatory environment, according to

Islamic banking and finance is fast becoming one of the biggest global niche market and is expected to grow at 12 to 15% a year over the next ten years. The report shows that much of the market, of which real estate investment is becoming a large feature, conforms to the principles of Shariah law which forbids the payment of interest and restricts activities permissible for investment.

The report details how Middle Eastern investment in European real estate reached £827m in 2001, an increase of 225% on the previous year. 90% of investors cited the UK as their favoured location for Shariah funds because of its political environment, legal and institutional frameworks, human capital and expertise. London’s wide range of skills in particular puts its commercial property industry in the strongest position to take advantage of the growth in Shariah compliant real estate investment.

Like “ethical funds”, Islamic investment funds require careful portfolio and stock selection to ensure compliance with Shariah law. Shariah property investment funds also prohibit renting properties to organisations engaging in business relating to pornography, gambling, arms, pork, tobacco, cinema and alcohol consumption.

The commercial and industrial property sectors are reported as the most popular investment by Shariah funds, with three quarters of respondents already investing in industrial property. A growing trend is the market’s move into property investments in leisure and care for the elderly which are compatible with Shariah principles and somewhat reflective of developments in other ethical funds.

According to Angus McIntosh, Partner & Head of Research at King Sturge international property consultants: ‘UK business is now familiar with ethical funds but there is a real need to find out more about the growing opportunities for Shariah compliant real estate investment and the nature of the market as this area represents a crucial opportunity for many UK businesses.’

The most important factor considered by Shariah complaint funds when buying and selling property was tax status (cited by 65% of respondents), followed by the availability of specialist expertise (61%), the regulation of investment and risk assessment regulation (both 47%) and the transparency of transactions (41%).

According to Ali Parsa, author of the report, and director of research at London South Bank University’s Property Surveying and Construction department: ‘The research indicates the likelihood of a substantial increase in the funds available for Shariah investment as a result of growing wealth in Muslim countries and communities, and that most of the new investments will be through some form of Shariah compliant funds.’

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