RESOLUTION No. (50/1/6)

'REAL ESTATE FINANCING'

Compiled By:
Prof. Dr. Mohd. Ma’sum Billah
masum2001@yahoo.com
masum@applied-islamicfinance.com
+6019-3699542

Quote-The Council of the Islamic Fiqh Academy, holding its sixth session
held in Jeddah, Kingdom of Saudi Arabia, from 17 to 23 Sha'ban, 1410 H (14
to 20 March 1990);

Having studied the papers presented to the Academy on the subject of "Real
Estate Financing", and having listened to the discussion that took place on
the subject;

RESOLVED

First:  House is a basic human need. This need should be fulfilled through
legitimate means by lawful (halal) money. The method of advancing loans on
interest adopted by the real estate and housing banks or other financial
institutions is prohibited under Shari'a, no matter how high or low the
interest rates may be, because this method is based on Riba (usury)
transaction.
Second:There are several lawful ways which can substitute the unlawful
(haram) ones for providing houses on the basis of ownership (in addition to
providing them on rental basis). For example;
a)The State can offer loans meant especially for the construction or
purchase of houses and repayable in suitable installments without charging
any interest, neither in express terms nor under the name of service
charges. However, if the need arises to meet the expenses incurred in the
operations of such loans and in their follow-up, the same can be claimed
from the debtors with the condition that the claim must be restricted to
the real and actual expenses in the manner specified in para (a) of
Resolution (13/1-3) adopted in the third session of the Council of this
Academy.
b)The capable State can undertake a project of construction of houses to
sell them to those who wish to acquire ownership. This sale may be on the
basis of deferred prices to be paid in installments in accordance with the
rules of Shari'a explained in Resolution (51/2/6) of this session.
c)The investor, whether individuals or companies, can undertake the
construction of houses which can be sold on deferred payment basis.
d)The house can also be acquired through the contract of "Istisna" on the
basis of its being binding on the parties. In this contract, the purchase
of a house can be completed before it is built, provided that the
specifications of the house are minutely enumerated in the contract, not
leaving any vagueness which can lead to disputes. In this case payment of
price in cash in full is not necessary, rather, it is permissible to defer
the payment of price to such installments as may be agreed upon, keeping in
view all the conditions prescribed for the "Istisna" according to the
jurists who distinguish it from the contract of "Salam".

AND THE COUNCIL RECOMMENDS:
to undertake further studies for bringing out other lawful modes which can
facilitate acquiring houses for those who need them.

Verily, Allah is All-Knowing. Unquote

(Source: "Resolution and Recommendations of the Council of the Islamic Fiqh Academy (1985-2000)” , IRTI.)