LONDON — Who says Arab and Islamic banking is not innovative. Some banks are “Islamizing” conventional products, others are playing safe with traditional trade finance, equities, and real estate products. Bank Negara Malaysia (the central bank), the Bahrain Monetary Agency (BMA), and the Islamic Development Bank (IDB), are pioneering the Sukuk Al-Ijara (Islamic leasing bond), which has its limitations.
But an investment company in Kuwait has recently come up with a unique $400 million BOT (build-operate-transfer) cum timeshare project which has become the hot topic in the Middle East and Islamic banking sector. The project not only incorporates value-added financial structures but also beneficiaries which include both the investors and promoters and the global Muslim community. Perhaps more importantly, if the concept takes off it could play a vital role in the efficient allocation and use of space in Makkah, especially during Haj season, and also be a control mechanism for the huge numbers of people performing the Haj each year. But to realize this will require some hard thinking by the Saudis, especially in relation to the law that allows Saudis only to own property in Makkah.
Munshaat Real Estate Projects Co., a dedicated Islamic real estate finance and investment company incorporated earlier this year in Kuwait with an authorized capital of $50 million, is building the Zam Zam Tower Complex, adjacent to the Grand Mosque in Makkah.
What is unique about this project is that it is being built on a Shariah-compliant BOT basis which incorporates a Sukuk Al-Intifaa (a timeshare bond), an Islamic alternative to the timeshare concept — the first such real estate project to be so structured.
“Our aim is to be different from the normal real estate companies operating in the sector through adding innovation and value-added products in niche market segments which have remained untapped,” stresses Meshal Al-Ameri, managing director of Munshaat.
The Zam Zam Tower is a five-star serviced apartment complex. Munshaat has leased the land from the Makkah authorities for 25 years in the form of a waqf (religious endowment). Munshaat is allowed to build the Zam Zam Tower Complex and related infrastructure from its own resources (equity and investors amounting to $390 million), and to operate the building by outsourcing its management on a five-star serviced apartment basis. Indeed bidding is already under way.
Investors from Saudi Arabia can buy 24-year sub-leases on the apartments, and they can further sub-lease the apartments to Muslims from all over the world on a Sukuk Al-Intifaa (timeshare) basis. Investors, according to Munshaat, can expect a projected internal rate of return of up to 26 percent per annum, which is very high compared with the prevailing rates in the real estate sector. This high rate, says Munshaat’s Meshal Al-Ameri, reflects the “quality of the structuring which went into place in developing the portfolio in terms of cash flow and the product itself.”
Al-Ameri also claims that the Sukuk Al-Intifaa addresses an actual need in the market. “In our due diligence on market demand, we discovered that 72 percent of visitors to Makkah stay between one and 10 days. Others stay for no longer than 30 days. So the demand is for short term stays,” he stresses. He dismisses the notion that the Saudi-only ownership might be an impediment to the marketing of the apartments, “because even if they own the unit they will not use it the whole year, because the investment satisfies a want, not a need. The units can be rented to others when not in use. In this way we are enabling any Muslim who goes to Makkah on a regular basis to rent a space for a specific time of the year, whether it is in Ramadan or the normal season, in a building managed by a top hotel operator.”
To market the Sukuk Al-Intifaa, the timeshare, Munshaat has heavily invested in marketing and management of the project through a subsidiary company MAS International, which is marketing the timeshare to Muslims globally. Munshaat’s Al-Ameri is coy about the use of the word timeshare because of its connotations in the leisure industry. However, this could be an over-reaction. After all the Haj has also traditionally been a focal point for both trading and spiritual cleansing and reflection. Muslims coming from all corners of the Ummah brought goods to sell both to finance their trips and caravans and to earn money.
Nevertheless, Munshaat believes that demand for the timeshare will be phenomenal and projects revenue from the project to exceed $800 million within the next three years.
- Arab News Business 8 September 2003
