Challenges of Affordable Housing Finance in IDB Member Countries

295 Pages·2012·15.91 MB·English

CHALLENGES OF AFFORDABLE HOUSING FINANCE
IN IDB MEMBER COUNTRIES USING ISLAMIC MODES

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Challenges of Affordable Housing Finance
in IDB Member Countries Using Islamic Modes

Nasim Shah Shirazi, IRTI
Muhammad Zulkhibri,ERPD
Salman Syed Ali, IRTI
in collaboration with SHAPE Financial Corp.

Occasional Paper No.13

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© 2012 Islamic Research & Training Institute, a member of the Islamic
Development Bank Group. All rights reserved. No part of this publication may be
reproduced , stored in a retrieval system or transmitted in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise without the
prior written permission of the copyright holder, except reference and citation, but
must be properly acknowledged.

The view expressed in this publication are those of the authors and do not
necessarily reflect the views of the Islamic Research and Training Institute of the
Islamic Development Bank Group
Cover Design By Mohammad Ali Asiri 2012©

First Published 1433H (2012)

Islamic Research and Training Institute
P.O. Box 9201, Jeddah 21413, Saudi Arabia

King Fahad National Library Cataloguing-in-Publication Data

Shirazi, Nasim Shah,
Challenges of Affordable Housing Finance in IDB Member Countries
Using Islamic Modes / Nasim Shah Shirazi, Muhammad Zulkhibri,
Salman Syed Ali, and SHAPE Financial Corporation.
266 p+(xxvii); 24x17 cm
Includes references, appendices and glossary.
ISBN 978-9960-32-203-2
L.D. No. 1433/3365
1. Housing. 2. Islamic—Finance. 3. Housing—Finance.
I. Shirazi, Nasim. II. Zulkhibri, Muhammad. III. Ali, Salman. IV.
SHAPE V. Title VI. Occasional Paper
363.5 – dc
HD7287

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Table of Contents

Table of Contents vii
List of Figures ix
List of Tables x
List of Boxes xi
List of Abbreviation xiii
List of Glossary xvii
Foreword xxi
Acknowledgements xxiii
Executive Summary xxv
CHAPTER 1 ................................................................................................... 1
1.1 Introduction .......................................................................................... 1
1.2 Objective of the Occasional paper ........................................................ 6
1.3 Methodology Used ................................................................................ 7
1.4 Structure of the Occasional Paper ........................................................ 7

PART I : Affordable Housing Needs and Challenges

CHAPTER 2 ................................................................................................. 11
Housing Demand and Supply in IDB Member Countries .......................... 11
2.1 Housing Demand ....................................................................... 12
2.1.1 Population growth ............................................................. 12
2.1.2 Urbanization ...................................................................... 13
2.1.3 Household Formation and Demography ........................... 14
2.1.4 Property Rights .................................................................. 15
2.1.5 Housing Finance ................................................................ 17
2.1.6 Macroeconomic Conditions .............................................. 20
2.2 Housing Supply .......................................................................... 21
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2.2.1 Land Availability ................................................................. 21
2.2.2 Infrastructure Quality ........................................................ 22
2.2.3 Housing Industry and Materials .......................................... 24
2.2.4 Property Registration ........................................................ 27
2.3 Housing Needs and Cost for IDB Member Countries ................ 28
CHAPTER 3 ................................................................................................. 35
Challenges and Issues of the Housing Sector ............................................ 35
3.1 Registration and Title Transfer of Property .............................. 35
3.2 Foreclosure on Property ........................................................... 40
3.3 Credit Information ..................................................................... 43
3.4. Long Term Financing ................................................................. 45

PART II : Financing Products and Models

CHAPTER 4 ................................................................................................. 49
Housing Finance ........................................................................................ 49
4.1. Existing Practices of Islamic Housing Finance (in IDB-Member
Countries and Muslim Communities in Non-Member Countries) ........ 49
4.1.1. Selected Models of Islamic Housing Finance .......................... 54
4.1.1.1 Mur ba ah Housing Finance ................................................ 55
4.1.1.2 Commodity Mur ba ah for Housing Finance:...................... 59
4.1.1.3 Ij rah Housing Finance: ........................................................ 61
4.1.1.4 Mush rakah Mutanaqisah .................................................... 66
4.1.1.5. Wak lah ............................................................................... 68
4.1.1.6. Isti n ................................................................................. 68
4.1.1.7. Ij rah Mawsoofa Bi -Dhimma ............................................ 69
4.1.1.8. IMBD + Isti n ..................................................................... 70
4.2. Experience of IDB in Housing Finance ....................................... 72
CHAPTER 5 ................................................................................................. 77
Evaluation and Comparison of Models ..................................................... 77
5.1. Introduction ................................................................................... 77
5.2. Conventional Housing Finance Solutions ....................................... 77
5.2.1. Common non-lending Concepts ............................................. 77
5.2.2. Summary of Conventional Housing Finance Models ............. 80
5.3. Evaluation of the Conventional Housing Finance Models ............. 88
5.3.1. Evaluation Basis ...................................................................... 88
5.3.2 Results of Evaluation................................................................ 91
5.4. Evaluation of Different Islamic Instruments .................................. 95

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PART III : The Way Forward

CHAPTER 6 ............................................................................................... 105
Suggested Models and Infrastructure Requirements ............................. 105
6.1. Suggested Model for Innovative Islamic Housing Finance .......... 105
6.1.1. DBP - Financing Instrument .................................................. 106
6.1.2. Cooperative Society .............................................................. 112
6.1.3. Communalized REOC: ........................................................... 117
6.1.4. Communalized REIT: ............................................................. 121
6.2. Infrastructure Requirement: ........................................................ 126
6.2.1. General Needs: ..................................................................... 127
6.2.2. Specific Legal and Regulatory Requirement: ........................ 137
6.3. Speculation, Real Estate & Housing: ............................................ 141
CHAPTER 7 ............................................................................................... 145
Summary of Findings and Suggestions .................................................... 145
7.1 Summary of Findings ..................................................................... 145
7.1.1 Importance of Housing .......................................................... 145
7.1.2 Estimates for Housing Demand ............................................. 145
7.1.3 Estimates for Financial Requirements ................................... 146
7.1.4 Challenges and Issues Constraining the Housing Supply ....... 146
7.1.5 State of Use of Various Islamic Modes for Housing Finance . 147
7.1.6 The Role of IDB In Housing Finance ....................................... 148
7.1.7 Survey of World-Wide Housing Finance Models (Conventional
Finance Models) ............................................................................. 148
7.1.8 Suggested Models and Infrastructure Requirements ........... 152
7.2: Suggestions ............................................................................. 155
7.2.1: Suggestions for the IDB Member Countries .................... 155
7.2.2: Suggestions for the IDB Group ........................................ 157
References ............................................................................................... 161

Appendices

Appendix 1. Age Composition in IDB Member Countries ....................... 177
Appendix 2 : Index of Access to Land for IDB Member Countries .......... 180
Appendix 3: List of Websites for Institutions Surveyed in Chapter 4...... 181
Appendix 4: Survey of Islamic Housing Finance Method ........................ 187
Appendix 5 Survey of World-Wide Housing Finance Models ................. 209

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