An Islamic financial services firm has released an SMSF product that allows Muslims to invest in property using Sharia principles, which forbid the paying of interest on borrowed money.
Meezan Wealth Management founding director Rokibul Islam said the Al-Mustaqbal Islamic SMSF would appeal to members of the Muslim community who preferred to invest in property because of its physical nature and history of increasing value, but were unable to do so as borrowing money to buy property and repaying interest was forbidden under Sharia law.
Islam said the Al-Mustaqbal Islamic SMSF had addressed this issue as Meezan Finance could provide funding that allowed repayments on money borrowed to buy a property inside a fund to be repaid as rent and dividends rather than interest.
He said the high cost of property in some markets meant investors struggled to find funds for a deposit but six-member SMSFs meant family and friends could pool money to get a Sharia-compliant loan and buy an investment property held in a fund.
“The amount people can borrow is not determined by their income, but rather by the size of the regular employer compulsory and voluntary personal contributions to the SMSF fund,” he said.
“Rent from the property would be taxed at a flat 15 per cent rather than higher personal income or company tax rates and when the property is eventually sold for a greatly increased price, it will be tax-free as it will be free of capital gains tax.
“It is a religious, ethical and tax-efficient win-win-win solution for Australian Muslims that was not available before.”
The new SMSF offering follows the launch of a digital investing solution in conjunction with OpenInvest a year ago and adds to the firm’s in-house Islamic superannuation fund, which operates as a sub-plan of an Australian Prudential Regulation Authority-regulated fund using Sharia-compliant screens to exclude certain investments.
