Sukuk al-Intifaa, or Right of Use, is being heralded as a new structuring instrument in real estate investment, Meshal Khalid Al Al-Ameri, danaging director of Munshaat Real Estate Projects Company told Paul McNamara recently.
Sukuk al-Intifaa has some similarities to the conventional concept of timeshare, but with important differences.
The first real life application of this new instrument is the backbone of the ZamzamTower project in Mecca, one of the largest real estate projects in the region.
Zamzam Tower is one of the five Al Beit Towers Complex, standing on the spot where the Ajyad Castle used to stand overlooking the Holy Mosque of Mecca. Another first is that the project finance of the Towers is the first BOT (build operate transfer) project in Mecca.
Buying the Sukuk essentially allows the holder the right of use of residential space within the Tower at a pre-determined time of the year. It is not clear how banks will treat the investment and whether banks will grant mortgages to cover the initial investment.
We met up with Meshal Khalid Al Al-Ameri recently to discuss the Islamic finance aspects of the project. Munshaat Real Estate Projects Co. K.S.C. (closed) is a Kuwait based real estate investment company that champions the use of Shari'ah compliant investment tools.
Can you tell us if the project is being funded entirely islamically?
Yes, the project is being funded by equity and structured in such a way that it depends on the cash flow coming in from the sales of the Sukuk. It is entirely Islamic finance funding.
Which company owns the development?
Munshaat owns the project and is the investment vehicle, which has developed the project itself and offered it for certain client investors, under a JV structure and it continues to manage the project. As far as the financing goes, the project size is $390 million, which has all been underwritten by the subscriber, investors, but we have called only a portion of that capital and we are depending on the cash flow coming from the sales themselves to cover the project expenses.
When does the project go live?
In 2006
Zamzam is one of five towers, is that correct?
Yes Zamzam Tower is one of five towers and is considered the biggest in size. It consists of 1240 units on 31 floors. The tower is unique in its structure, using state-of the art technology. It has 36 elevators because the visitors are there for religious purposes, and they want to be close to the haram area and go back there 5 times a day. Therefore the traffic is an important aspect that has been missed in many other projects. And this is one of the things that makes this project unique. And of course it is facing the haram open space so you don't have to go through any traffic to reach that area.
Where did the idea first come from?
We have been looking to develop a unique product or instrument that can be used in the real estate market other than the conventional real estate investment tools that are being used. Of course there are certain segments of the market that haven't been tackled by Islamic financial institutions before because of lack of proper instruments to embody those. So, thinking of that we have developed the concept of Sukuk al-Intifaa, the right of use deed. The right of use deed gives you the rights to a specific property for a specific time of the year for a number of years. This will deal with the need rather than the want. People can take only the period that they actually need to hire or rent, rather than occupying a full flat and only utilizing it for a small part of the year.
Of course this concept is not that new. It has been used by in the conventional timeshare concept. But there are some key differences that have been covered under the Sukuk concept.
After we developed that structure, we thought, 'OK where is the best place to first launch such a project?' We looked at the Mecca market and we discovered a very important point and that is that 72% of visitors stay between one and ten days. So this told us that there is a need for the short stay market, and not for the long one.
On the other hand, what has been offered is either the hotels or furnished apartments or the ownership of the flats or buildings, which is only limited to Saudis.
Therefore, we thought, this would be an ideal project to launch Sukuk al-Intifaa specifically because even non-Saudis can own that right of use deed. It is not an ownership of property, but ownership of right of use based on a lease contract. And yet it will cover the needs, even for the Saudis, the locals.
It has been noted by everyone, including by the Saudi officials, as an innovative idea. It contributes to helping with the problem of accommodating the great number of visitors and this project is considered an optimisation of space. A single flat can be used by multiple people while having the feel of ownership.
Since the properties are being used by more than one person, we are having them managed under and international hotel group to maintain the five star levels which has been anticipated for such a project.
How does one go about re-selling one's rights?
One of the major tasks of Munshaat is to develop the infrastructure from the secondary market perspective. Those who buy these Sukuk, or these certificates, enabling them to exchange them or to sell them down, or to rent them or lease these rights for others, is to create an active market and to retain the value of the Sukuk for its holder.
To do all of this we have established three entities. One is the technology arm that will own the exchange portal to enable people to exchange their Sukuk and will act like an electronic exchange where you can cross match buy and sell requests. Another entity is the retail entity and the servicing entity, which will deal with the individual users, in exchanging their utilisation period for a different one. The third one is the hotel management that will manage the facility on behalf of the Sukuk holders. Munshaat, being the owner of the project, will supervise to make sure that all of these entities work properly to support the concept and the project.
© Banker Middle East 2004
