Conventional Real Estate Investment Trusts

The concept of real estate investment trust is wonderful. It gives a chance to investors to earn money in an alternate way. In this kind of investment the investor purchases security and sells it the way stocks are sold. This kind of investment can be direct or indirect. That is dependent upon the kind of REIT as there are further classifications of that.

REITs are different from the investment in real estate by means of purchasing through bilateral transactions. It has nothing to do with the investments in real estate development schemes. That kind of investment often results in the instability and loss at the end of investor. There is no assurance that general public is going to earn anything out of that or whether it will result in the blockage of investment. In comparison REIT is a safer way of investment with having better chances of return on investment.

An advantage of REIT investment is that a smaller investor can easily manage to invest in it. Similarly the process of investment is transparent and there cannot be any taxation problems.  Generally speaking there is no taxation involved on the profits earned by investors in many countries. The process of making investments and earning is safe and secure. There is an equal opportunity of earning given to all investors which make it fair play at the end.

A great aspect about REIT is that the investors get dividends and profits even if they don’t sell their investments. That means if an investors goes in loss, he/she is not liable to sell the investment. Rather he/she can sit and enjoy the dividends for the times to come till the investment turns into a profit eventually.

One of the problems in traditional real estate investments is that the investor has problems in getting the property liquidated in the times of need. Such kind of problem does not exist in case of REITs. The reason is that the REITs can be liquidated anytime into cash. They are traded the same way stocks are traded in the stock exchange markets.

One thing that makes many investors worried to trade in the stock markets is the volatility. Stock markets around the world are usually volatile and there are chances of losing money in them. However when it comes to REITs then this kind of investment is comparatively less volatile and there are less chances of an investor losing money.

The structure of REIT is very similar to the one that is of mutual funds in the stock markets. In most countries the REITs are bound to pay a high percentage of return to the investors. For the same reasons this kind of investment has no tax on the return in many countries. That ultimately makes the investment safe and secure for the investors in many ways.

1.1-            Historical Back ground of REITs

The concept of REITs is not new. It emerged in the end of nineteenth century as a system that can save the investors from double taxation. There was taxation at the corporate level as well as at the individual level in such times. This concept initially helped many people in the avoidance of double taxation while ultimately it resulted in the success. It started from USA and now it has been practiced in many countries around the world.

Some of the countries that are progressing in REITs these days include Canada, Australia, Finland, France, Germany, Japan, India, Pakistan, Ghana, Hong Kong, Philippines, Nigeria, UAE, Singapore and UK. All these countries have their own rules and regulations regarding REITs. Similarly they are following their own ways according to their own customs and traditions. Most of the countries relying on REITs are newly adopting this concept. This concept gained popularity in the world in recent decades. For the same reasons this concept has not been brought in line with the principles of Shariah.

REIT’s are not mainly adopted by the Muslim world so far. There are only few countries that are currently relying on this concept but they are doing it the traditional way. There is a strong need of making the concept of REIT compliant with the laws of Shariah. The concept of Halal and Haram should be carefully examined to bring this concept in the parameters of Shariah. In this respect the Islamic Scholars belonging to various schools of thoughts should also be consulted. Probably that way a new dimension of REIT will be explored which can be beneficial for the Islamic world as well as for the west.