Real estate

Can you set up a structure to hold and control some real estate?

Yes, we can assist with this. The structuring will need to consider a number of factors, including tax and legal advice to be provided that sets out how to efficiently set up and run the structure, including ongoing legal and tax compliance/filing obligations. Please contact us if you wish to discuss further. If necessary we can put you in touch with parties we consider would be suitable to provide such input.

Do you use only companies to hold real estate?

No, we have experience of other types of entities holding real estate. Please contact us to discuss further.

We are looking for funding to support a property acquisition, can you assist?

We work with many lending institutions (who provide senior and/or mezzanine finance) having transaction with them in the past and would be very happy to discuss with them the proposition and introduce them to you.

We have identified a property that we would like to acquire. Who can undertake the necessary legal work?

Through numerous property transactions undertaken in the past we know a variety of law firms that could be engaged. Please contact us to discuss further.

How do we make sure all necessary tax compliance obligations of the structure are discharged?

We work with many suitably experienced professional firms and would have a firm engaged to advise on what is required to be undertaken and provide such support as is necessary to ensure all matters are addressed appropriately.

Islamic finance

What is Islamic Finance?

Islamic Finance is a broad term that encompasses financial activity and transactions that are structured to comply with Islamic principles. These include well known prohibitions such as the charging or earning of interest and trading in prohibited assets (pork, alcohol, etc.) but also positive principles such as equity and participation. A common phrase used in Islamic financing contracts is “the profits that Allah bestows on our joint venture” and this encapsulates these positive principles.

Are the Principles of Islamic Finance open to interpretation?

Islamic finance derives from absolute principles rooted in the rulings of the Shariah Law. However, there are several Schools of Islam which can lead to variations in interpretation of relevant financial principles. As a Scholar once said to Trevor Norman, VG’s Director of Islamic Finance,”The Shariah is infallible; it is man’s interpretation of the Shariah that is fallible”. Core principles and most forms of Islamic finance contractual arrangements are subject to Shariah standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).

What is a Shariah Board?

A Shariah board comprises Islamic scholars who are experts in Islamic jurisprudence (Fiqh Muamalat). The role of a Shariah board is to ensure compliance with Islamic principles in the products offered by Islamic Financial Institutions (IFIs). All products offered by IFIs will be assessed by the Shariah board. Their verdict and judgment (fatwa) is binding on the IFI (and other related parties such as VG) and the fatwa provides a level of comfort to the investors in the product or structure.

Can you provide Shariah Scholars for a structure?

VG itself is not qualified to provide Scholars or produce a fatwa, however, we have worked with a number of different Scholars over the past 20 years and can assist clients in finding a Scholar or a Shariah Board.

What if a Shariah-compliant structure acquires non-compliant (haram) assets or receives haram income?

Should this happen any inappropriate asset should be sold as soon as possible, and any profits from the sale should be donated to charity. Similarly, any such income should be ‘cleansed’ and paid away to charity, or where the income ultimately derives from a number of sources, it may be that only a portion of the income needs to be cleansed in this manner.

Can non-Muslims invest in Shariah-compliant products?

Yes. Shariah-compliant funds and related investments are very similar to other forms of Ethical Investment and normally are open to investment by anyone. Indeed, in a Sukuk structure we established on behalf of an Islamic bank, all the Sukuk Notes for one class were purchased by a conventional UK bank.

Can structures be established that reflect the requirements of both conventional and Islamic finance and respective investors?

Whilst conventional investors may invest in an Islamic structure, there can be reasons why they would prefer to invest in the structure through a conventional vehicle for say taxation or regulatory purposes. In such cases VG have established a conventional ‘feeder’ vehicle that invests alongside the Islamic investors into the overall structure.

What types of Islamic financing transactions has VG supported?

It is over 20 years since we were requested to form the first Shariah-compliant real estate fund in Jersey. Since then we have established and administered a wide variety of Islamic finance structures, including:

  • Regulated and unregulated real estate funds investing in a wide variety of commercial real estate in the UK and USA, established as Limited Partnerships, Companies and Unit Trusts;
  • Regulated Shariah-compliant equity funds;
  • Sukuk structures;
  • Financing structures; and

Trusts and companies for private individuals to own assets located outside the GCC.

What part does VG play in structuring Islamic financing?

Our primary role in these structures is to be the facilitator. We are normally approached by an IFI or their lawyers with a proposed structure or idea concerning a transaction and are asked to assist with implementing the structure to facilitate the transaction. Sometimes the proposal can be very detailed requiring little input from ourselves, but often the proposal is a rough outline and we are required to use our skills and knowledge gained over the past 20+ years to assist in designing the structure.

Following implementation, we will normally play a very active role in administering the structure which may include undertaking such roles as Directors of the corporate vehicles, Company Secretary, Registrar, Paying Agent, accountant and even providing Compliance services to the structure, and the investors.

What are the advantages of Islamic finance over conventional structures?

The three core principles that govern Islamic Finance are:

  • Principle of Participation. There is a key Shariah ruling that “reward (that is, profit) comes with risk taking” which requires that there must be a link between financing activity and real activity such as project productivity or asset performance. This lies at the heart of Islamic finance ensuring that increases in wealth derive from productive activities.
  • Principle of Equity. Those engaged in an Islamic finance transaction do so on an equitable or partnership basis. There must be full disclosure of information, prohibiting undue uncertainty, known as gharar.
  • Principle of Ownership. Another Shariah ruling “do not sell what you do not own” requires asset ownership before transacting. This has led to Islamic finance being recognised as ‘asset-based’ financing strengthening the link between finance and the real economy.

In summary, parties to an Islamic finance transaction share in the risks and rewards on a partnership or equitable basis according to their effort and capital contributed to the transaction.

What are the disadvantages of Islamic finance over conventional structures?

The major disadvantage is simply a lack of understanding and knowledge in the international finance markets. Many participants view Islamic finance as an unknown niche market, governed by contracts with strange sounding names and have a presumption that Islam disallows most forms of investment and financial activities. This is purely because they have never been involved in an Islamic finance transaction, and fail to understand that in Islam most activities are allowable, unless specifically classified as haram, i.e. harmful or disallowed. Similarly, those financial contracts with strange sounding names have largely become standardised documents as the Islamic finance industry has matured and more and more international law firms have identified Islamic finance as a possible growth area. Many of these Islamic contracts have parallels in conventional finance and, with the exception of Hedge Funds, it is difficult to identify a form of conventional financial instrument or structure that cannot be replicated in Islamic finance. 

The cost of Scholars required to provide Shariah approval of the structure is often quoted as a barrier and disadvantage, but in reality most structures will be underwritten by IFI's that will already have an in-house Shariah Board to provide the review and approval. It should be noted that the approval of the structure by Scholars can be a very powerful marketing tool as investors will often see this as a validation of the structure as a suitable investment.