Charging of profit for the delayed period in Islamic finance property projects has been described as non-Islamic or 'haram' by the Dubai Grand Mufti, Dr Ali Mashael.
Some Islamic banks and mortgage companies have asked investors to pay advance installments (the rental profit or Ijara) even though an already delayed project is not yet completed or handed over.
Many Islamic finance projects are nearing completion, and investors have received notices from the Islamic banks and mortgage companies that they will have to pay profit for the period the property has been delayed.
During the economic boom, many investors got in to agreement with Islamic banks and mortgage firms and the developers where the investor pays a down payment of about 5 per cent of the property price to the developer at the time of signing the contract.
After that, the bank -- as owner -- pays the developers, and at the time of property handover, the investor pays the value of the property as rent-to-own installments to the banks over a period of time.
However, many property projects have been delayed. And now, the Islamic banks and financie firms are asking the investors to pay the rent on these properties, even for the delayed period.
However, Dr Ali Mashael said that this is not compliant with Islamic finance rules.
“As per the Islamic finance principles, the two parties must stick to the original agreement.
Also, the bank should not charge the customers the rent amount or profit during the property delay period. This is the risk which the bank should take alone and not pass it to the customers.”
He added that even if the building materials costs has increased from the initial time when they signed the agreement, still the bank does not have the right to increase the amount they charge the customers.
“This is the basics of Islamic finance. If the banks do not follow this, they are being like conventional banks, not Islamic.”
He pointed out that the bank must take all the things and issues into consideration before getting into any project.
“If they incur losses from these projects, it is not the investors fault. Then why they [investors] are being charged for it. The bank must take the full responsibility of the delay period, not the customers.”
Several investors has complained to Emirate 24|7 claiming that banks and mortgage firms were not in compliance with Shariah finance.
AA, a Syrian investor said: “I purchased a flat in 2007 from a property project which was financed by a leading Islamic finance provider. The initial agreement was that I pay the developer 5 per cent of the apartment value and then lease the flat from the bank on a 20-years lease period after which I will own the flat.
“The agreement said that the flat will be delivered in 2009. However, due to the delay, the flat till today has not been handed over to me. I received an email from the finance company asking me to pay Dh180,000 which it says is the profit they are charging me for the mortgage during the delay period from 2009 to-date. It also said this amount will increase on daily basis as this depends on the interest rate.”
AA added: “This is not Islamic finance at all. I purchased this apartment from an Islamic finance company because it is safe and it protects the rights of investors and guarantees that we will not suffer due to unexpected reasons. Then how come they are doing this to us?”
The Islamic financial institution was approached for comment by Emirates 24|7, but so far has not issued any statement.
Another investor who is facing similar situation said that it is wrong what the banks and finance firms are doing to investors.
“Why do we have to pay rent for the delay period? It is supposed to be Islamic financing, and thus we should not pay the rent on a flat which is not yet occupied by us.”