Islamic mortgage repayments

[duncheski]

Hi, I bought a 2 bed apartment in marina 18 months ago just prior to construction commencing and we are still 18 montha away from anticipated completion. In the contract it states that if the project is delivered more than 12 months late then i will get all monies returned to me ie my deposit and the profit payments i have been making to the bank who own and lease back the property under the islamic mortgage arrangement. I've been paying around 6,000 dhs in profit payments per month for the last 18 months so has been piling up, not to mention the drop in value since purchase.

Has anyone had experience of these islamic mortgages and if there recourse to getting my money back due to late completion? Also if since i don't won the property i can just walk away from it and leave it for the bank to deal with? I will lose my deposit of 40k sterling that way but whats pissing me off is the 6-7k per month profit installments to the bank on the money borrowed until property is complete which could be 2 yrs away. I wud rather accept my losses now and walk away from it if i can.

Anyone help?

[oof]

Originally Posted by duncheski

Hi, I bought ...apartment... 18 months ago... prior to construction commencing and we are still 18 months away from anticipated completion. In the contract it states that if the project is delivered more than 12 months late then i will get all monies returned to me ie my deposit and the profit payments i have been making to the bank who own and lease back the property under the islamic mortgage arrangement....
...
Anyone help?

There's a few things i'd want to say for my 10 pence worth. I give Independant Advice on shariah-compliant "mortgage alternative Home Purchase Plans" (HPP) here in the UK.

1. There is no such thing as an Islamic 'mortgage' - there are shariah-compliant 'mortgage ALTERNATIVES' or alternative methods that are Islamically acceptable - still not correct to call thenm Islamic Mortgages.
2. In my opinion, and I'm no Islamic scholar, the agreement might be void in a shariah court so its worth exploring. You have an own and lease back agreement, in arabic that would be an 'Ijara' based contract. In my understanding, the shariah only allows the leasing of an item that has some usufruct AND cannot be consumed (eg, you cannot rent food, money, gold, etc). You are saying your property isn't completed yet so what are you renting? EVEN if the bank has financed some of the work, they cant demand rent from you, there is no rent on money either in shariah (because that in plain English would be interest). Just on the basis that the contract might not be valid might be worth exploring further - if you get your money back - dont forget to share with me ;-)
3. before you get too exited, make sure it was an Ijar ah arrangement. It could be an Istisna arrangement where the property is built on your behalf and you wre happy with the spec etc. Now Istisna is a sale contract so the bank funds the project and owns it and are making a profit on selling the completed item to you... which they take in instalments. the only the Istisna is void is if the end product does not meet the spec initially agreed OR if a maximum time frame was stipulated and the manufacturer/constructor did not meet the timescale. if its an Istisna arrangement, you may have some grounds here. tell them they have violated the agreement so shariah allows you to cancel, yes, your money back.

Thats the theory. How would you go about it real life... ??!

Good luck.

Nizam, One Option Finance: 01254 421851.

[duncheski]

Originally Posted by oof

There's a few things i'd want to say for my 10 pence worth. I give Independant Advice on shariah-compliant "mortgage alternative Home Purchase Plans" (HPP) here in the UK.

1. There is no such thing as an Islamic 'mortgage' - there are shariah-compliant 'mortgage ALTERNATIVES' or alternative methods that are Islamically acceptable - still not correct to call thenm Islamic Mortgages.
2. In my opinion, and I'm no Islamic scholar, the agreement might be void in a shariah court so its worth exploring. You have an own and lease back agreement, in arabic that would be an 'Ijara' based contract. In my understanding, the shariah only allows the leasing of an item that has some usufruct AND cannot be consumed (eg, you cannot rent food, money, gold, etc). You are saying your property isn't completed yet so what are you renting? EVEN if the bank has financed some of the work, they cant demand rent from you, there is no rent on money either in shariah (because that in plain English would be interest). Just on the basis that the contract might not be valid might be worth exploring further - if you get your money back - dont forget to share with me ;-)
3. before you get too exited, make sure it was an Ijar ah arrangement. It could be an Istisna arrangement where the property is built on your behalf and you wre happy with the spec etc. Now Istisna is a sale contract so the bank funds the project and owns it and are making a profit on selling the completed item to you... which they take in instalments. the only the Istisna is void is if the end product does not meet the spec initially agreed OR if a maximum time frame was stipulated and the manufacturer/constructor did not meet the timescale. if its an Istisna arrangement, you may have some grounds here. tell them they have violated the agreement so shariah allows you to cancel, yes, your money back.

Thats the theory. How would you go about it real life... ??!

Good luck.

Nizam, One Option Finance: 01254 421851.

Thks for the advice. It is an Ijarah mortgage so the bank own the property and are effectively loaning me back the property until it is paid off - just that there is no finished property yet so i am unable to rent anything out just yet - very frustrating!

It sounds like it is worth getting in touch with a lawyer on this - What kind of deal is it where you buy a property off plan and have to pay circa £1,000 per month just as interst payments on the finance borrowed until the property is complete without receiving any return on it? Based on a total of prob 3.5 years until property is complete since i purchased it in oct 2008 i will have paid around 45-50k sterling plus annual insurance payment of 2k per year.....so total of maybe 55k sterling with no return. In order for me to just break even i would have needed the property which i purchased for around 230k to appreciate in value over that 3.5 yrs to 285k.....a 24% capital appreciation! Given the way the market has gone since then i have actually suffered a 40% drop in value!

[oof]

Originally Posted by duncheski

Thks for the advice. It is an Ijarah mortgage so the bank own the property and are effectively loaning me back the property until it is paid off - just that there is no finished property yet so i am unable to rent anything out just yet - very frustrating!

They cant charge you rent until you are given use of the item. Another type of Ijara is when you 'hire' the services of a person or company. So in a building project, you could be hiring the construction companies services BUT then you would be the owner and you would have to buy the materials and they are only entitled to their labour charges. So that doesn't apply here either. Definitely see a lawyer or shari'ah scholar who has speciality in this field.

[oof]

Originally Posted by duncheski

... It is an Ijarah mortgage...

I don't like the use of that term. A mortgage normally relates to a loan... you haven't taken a loan! You have agreed to rent the banks share of a property.

[oof]

Originally Posted by duncheski

...
... What kind of deal is it where you buy a property off plan and have to pay circa £1,000 per month just as interst payments on the finance borrowed until the property is complete without receiving any return on it?

THEY SHOULD NOT BE INTEREST PAYMENTS. IT WILL BE PROFIT THE FINANCIER MAKES FROM THE SALE.

Istisna'a- advance purchase of goods or buildings

A contract of acquisition of goods by specification or order, where the price is paid in advance, or progressively in accordance with the progress of a job. For example, to purchase a yet to be constructed house, payments would be made to the builder according to the stage of work completed.

This type of financing, along with Salam, is used as a purchasing mechanism


Salam- advance purchase
Advance payment for goods which are to be delivered at a specified future date. Under normal circumstances, a sale cannot be effected unless the goods are in existence at the time of the bargain. However, this type of sale is an exception, provided the goods are defined and the date of delivery is fixed. The objects of sale must be tangible goods that can be defined as to quantity, quality and workmanship.

This mode of financing is often applied in the agricultural sector, where the bank advances money for various inputs to receive a share in the crop, which it then sells.

[oof]

Originally Posted by duncheski

... since i purchased it in oct 2008 i will have paid around 45-50k sterling plus annual insurance payment of 2k per year.....

One final thing: when you speak to your lawyer, ask whether insurance premiums which I assume were conditional to the contract are for. If the property doesn't exist, what are you insuring?

Nizam

[RRAA]

Duncheski

I also have an Ijara mortgage I'd like to get away from, as I'm in negative equity. In my case, it's for an Abu Dhabi property.

From my contract, it's not clear whether the bank would be entitled to require from me the difference between the house's value and the "transaction amount" (which is what the bank is supposed to pay on my behalf).

Do you have any news regarding this matter, from your end?

[Land Sterling]

Guys, if you need a valuation of you property for arbitration purposes, do not hesitate to contact me (or pm me). We have done over 200 valuations for arbitration purposes.

We are also listed with majority of the banks.

We have worked with Ijara, Istisnaa, Musharaka, Loan Security (Murabaha) type mortgages.

[duncheski]

Originally Posted by RRAA

Duncheski

I also have an Ijara mortgage I'd like to get away from, as I'm in negative equity. In my case, it's for an Abu Dhabi property.

From my contract, it's not clear whether the bank would be entitled to require from me the difference between the house's value and the "transaction amount" (which is what the bank is supposed to pay on my behalf).

Do you have any news regarding this matter, from your end?

RRAA,

I am getting in touch with a dubai lawyer soon. I understand from my contract that if the property is more than 12 months late in delivery i will receive a refund on all my monies expended to date. I will let u know how i get on