It has been just over 10 years since the UK Treasury and the Financial Services Authority bought the home purchase plan scheme of Shariah compliance mortgages in the UK within their regulatory remit. The growth of Islamic real estate finance in the UK in the past 10 years has been tremendous.
There are now around 20 financial institutions that offer Islamic finance services with five fully Shariah compliant banks. The UK has grown to become the western hub for Islamic finance globally. Lingxi Wang provides further insight.
The UK, London in particular, has historically been an attractive location for real estate investment. Despite some volatility in recent years due to the global economic downturn between 2007 and 2011, yields from UK real estate have stabilized and there remains significant competition for the highest quality assets.
One of the reasons behind the strong growth of Shariah compliant real estate finance in the past decade is the UK authorities’ leading role in adapting and developing pre-existing legislation and regulations governing the tax treatment of financial products in order to cater to Shariah compliant structures. In doing so, this has enabled a level-playing field for Islamic finance products and conventional finance.
For example in 2003, the UK government introduced special exemptions for stamp duty land tax to relieve the unintended consequences of double taxation that arose as a result of the structures used by some Islamic mortgages. As a result, Islamic finance has been used in a number of high-profile projects in London such as the Shard, the Olympic Village and the redevelopment of the Chelsea Barracks and Battersea Power Station sites.