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With Dubai property mania still steaming ahead, there are more and more folk from around the world requiring finance to purchase their dream home here. We have covered the legal aspects with regards to Shariah Law in previous articles but it has become apparent that mortgage folk, realtors and buyers do not realize the difference between Ijara, Murabaha and other forms of finance. More importantly you should know the impact it could have on your property purchase in Dubai.

If you want to know the difference (hopefully before you buy in Dubai) then

Let’s first explain what an Islamic mortgage is. The origins of an Islamic mortgage stem from the Holy Quran. Simply put, it prohibits all sources of unjustified enrichment. One significant aspect is the prohibition on charging interest for the use of money – the profit charged on money is calculated by profit actually generated, in other words not pre-determined or guaranteed. Under a conventional mortgage, the lender charges interest on the finance that they lend you to purchase a property. In most cases you pay a proportion of the capital and interest on a monthly basis.

So how does an Islamic loan differ if you can’t charge interest? There are two distinct structures, Murabaha and Ijara. The Murabaha method is where the lender buys the property and than sells it to you with a profit. You pay the amount back in monthly installments at a fixed amount. Ijara works in a similar way, where the lender again buys the property you want, and then leases it to you for a specified term. The monthly figure is therefore a rental figure which can be adjusted periodically, in line with leasing rates. After the term – when all the payments are up to date – the property is transferred to you. Under both types it is worth noting that you may be liable for charging – not only in the first instance of the purchase, but also at the end when it is transferred to you. Tamweel and Amlak offer Shariah compliant mortgages. Other banks use conventional mortgages at the moment.

In terms of what is best for you, well at the end of the day it doesn’t make too much difference. The property ownership is the main factor. Let’s say you take an Ijara mortgage – the property is owned by the lender who leases it back to you for a set period and when the lease is finished, the property becomes yours. If you had a 15 year term and you got to year 14 and could no longer make the repayments, you could end up losing everything. A standard mortgage would allow for repossession where the lender can sell the property to recover the debt and you then get what’s left over. This is not the case with Ijara where you could potentially lose everything.

Why not contact Globaleye today 8004558 (+9714 3979550) and speak to the only mortgage broking company in the United Arab Emirates. We cover all the local lending options and consider the international ones too – we can arrange 100% finance in some cases not to mention our array of other services crucial to any property purchase. Remember that we do not sell property but give you all the nitty gritty you should consider before buying anywhere.