MUMBAI: Booming Islamic finance is likely to acquire assets in India through Islamic Real Estate Investment Trusts. According to a report by Moody's although IREITs are not in existence in India, the draft IREIT guidelines issued by SEBI may pave the way for these funds into the Indian property market.
With high oil prices funnelling billions of dollars to the Middle East, there is an increased demands for Sharia-compliant finance products. According to Moody's, Islamic finance is now estimated to be worth around $700 billion globally while Sukuk, or Islamic bonds, are the fastest-growing segment, with volumes worldwide reaching $97.3 billion till 2007.
Moody's pointed out that the property boom in the Middle East makes IREITs a much-needed product and a useful investment tool, given the existing favourable investment and regulation environment. Moreover, there has been a growing appetite for the real estate asset class among regional institutional investors as the region boasts of world's highest concentration of high net worth individuals and family businesses, which in the GCC alone is estimated at over $1.3 trillion.
In terms of the money raised through Sharia-compliant instruments, Sukuk bonds continue to remain at the centre stage, with more than $19 billion in Sukuk issuances in '07 in the GCC region. The UAE and Saudi Arabia have accounted for more than 87% of the total.
The just-released report on Islamic Finance is authored by Dominique Gribot-Carroz, a Moody's assistant vice-president in Hong Kong, and Faisal Hijazi, an Analyst in London. "From a global point of view, we anticipate that overall Sukuk issuance should continue to increase in '08 by approximately 30-35% per annum," said Gribot-Carroz, adding that new funds would be raised mostly in Gulf Cooperation Council countries, North Africa and Asia-Pacific.
More specifically, Moody's new report pointed out that Asian currency-denominated Sukuk outstanding grew by close to 50% to $65.3 billion in '07 from $43.6 billion in '06, adding that growth has become even more sustained since the summer of 2007.
Malaysia continues to lead the way in terms of offering an attractive environment for Islamic finance and remains the biggest domestic market worldwide. Ringgit-denominated Sukuk issued in '07 amounted to the equivalent of $64.4 billion, or 66% of the global outstanding as on December 31, 2007. The prospects for Islamic finance in Asia-Pacific are generally good, the report said. For example, the Japanese government is planning its first sovereign Islamic Sukuk in 2008, valued at between $300 million and $500 million.
Moreover, in the rest of Asia, economies such as Singapore are contemplating issuing their first Sukuk in 2008, while in Hong Kong the authorities are fully supportive of the development of Islamic finance. At the same time, Moody's expects the small, but growing Sukuk markets in Pakistan and Indonesia to grow significantly over the coming years.
Even though the total assets of Islamic banks in Indonesia may still only represent a minor portion of the country's total banking assets, Moody's believes they are expected to grow significantly, and that this could also encourage Sukuk issuance.
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