MCCA Property Finance
- What is Ijarah? What is Ijarah Muntahia Bittamleek?
- What is Amlak?
- How does Amlak work from a Shariah viewpoint?
- What is Tamleek?
- How does Tamleek work from a Shariah viewpoint?
- What is Murabaha?
- What is the difference between MCCA’s home financing products and a conventional bank home loan?
- Is the use of percentage rates (%) to calculate rent Shariah compliant?
- What is the difference between MCCA’s rates and a conventional bank home loan interest rate?
- If MCCA’s home financing products are interest-free, is it cost-free?
- Is the funding source for MCCA’s home financing products acceptable from a Shariah viewpoint?
- Why does MCCA use the word “interest” in some of its home finance product contracts?
- Is Ijarah Muntahia Bittamleek considered as two contracts in one?
- How does MCCA calculate its home finance product rates?
- Can the rental rate be variable?
- Would MCCA provide home financing to a Non-Resident person?
- Would MCCA share any profit or loss as a result of selling the property?
- What is Mortgage Insurance or LMI?
- Can I re-finance my existing bank loans?
- Who can apply and obtain finance?
- Whose name will be registered on the title?
- What happens if I do not provide all the documents required?
- Who will provide the mortgage management services?
- Can the funder’s insurer or funder ask me for further documents?
- What does a Pre-Approval mean?
- What happens if the property is valued at a lower amount than expected?
- What happens if the valuation report is not acceptable and I have conditional approval?
- When can I pay my 10% deposit?
- Will I be refunded for the valuation and finance processing fee if my application is not approved?
- What are the time frames for each step of the application process?
- What happens if I feel that my application is taking longer than the expected timeframes mentioned?
- Do you provide Construction finance?
- How long is my approval valid for?
- What do I do if it expires and I haven’t found a property yet?
- When do I apply for my FHOGS?
- Can the rental facility fee rate change after I have signed my contract?
- What do I do if I want to increase the finance amount after I have been approved?
- What is the maximum term for the Murabaha contract?
- Can I have a Murabaha in any State in Australia?
- Does MCCA offer finance for Commercial properties?
- Does MCCA offer personal finance?
- Does MCCA offer finance for Property Development?
- Does MCCA provide finance for Self-Managed Superannuation Funds (SMSFs)?
- What are the differences between all MCCA property finance products?
ljarah is a leasing arrangement whereby a financier buys a property or asset on specific request of the client and then leases it to the client over a pre-agreed period, with the client making pre-agreed rental payments.
Ijarah Muntahia Bittamleek is a form of Ijarah with the added feature of the transfer of ownership of the property or asset from the financier to the client at the end of the agreement period. It is a widely used Shariah arrangement for property finance, where from the outset the mutual intention of the parties is that the transfer of ownership of the property or asset to the client will occur.
The transfer of ownership in this instance typically occurs at the end of the agreement period.
As a form of property finance, an Ijarah Muntahia Bittamleek arrangement would have the following features from a Shariah viewpoint:
- The client acts as agent for the financier to source and contract the property to be bought;
- The client promises to lease the property and the financier promises to only lease the property to the client;
- The client and the financier agree that the client will manage the property on behalf of the financier during the lease period, including meeting all outgoings such as insurance, rates, maintenance;
- The lease period is pre-agreed;
- The lease payments are pre-agreed (if fixed) or first lease payment and the basis of calculating the lease payments are pre-agreed (if variable);
- During the lease period, the property will be registered in the name of the client as trustee for the financier;
- On payment of the final instalment, the ownership of the property will transfer to the client by way of promissory gift
Amlak, which means “asset” in Arabic, is a property financing arrangement used by MCCA based on an Ijarah Muntahia Bittamleek arrangement.
- A potential client applies for Amlak finance;
- MCCA conducts a preliminary assessment on the client’s financial serviceability;
- Subject to a satisfactory preliminary assessment, MCCA issues a conditional letter of funding approval on behalf of the Funder to the client;
- The client is considered to have been appointed by MCCA as Wakeel to identify a property the client wishes to lease (to own);
- The client then identifies the property as Wakeel of the Funder to buy and promises to lease the property (to own) from the Funder;
- The client will be considered to have entered into lease arrangement with the Funder which details the client’s rights to occupy the property;
- 0nce the property is purchased, the client will make ongoing periodic payments to the Funder considered to be lease rental, (typically via a Direct Debit setup automatically from the client’s nominated bank account);
- The client may purchase the property outright from the Funder at any time during the agreement period by paying the Funder’s outstanding amount on the property which is considered to represent the Funder’s ownership in the property.
- The Funder will transfer the property title over to the client in the form of a promissory gift (hiba).
- If the client chooses to maintain lease arrangement though-out the whole agreed period, on receipt of the last payment the Funder will transfer the property title over to the client in the form of a promissory gift (hiba).
Tamleek simply means “ownership” in Arabic and is also a property financing arrangement adopted by MCCA based on Ijarah Muntahia Bittamleek.
- Potential client first applies for Tamleek
- MCCA assesses the clients’ suitability for the product and financial serviceability, and if eligible, provides a conditional Funder approval
- MCCA, as agent for the Funder, is considered to have appointed the client as sub-agent to identify a property within the conditional approval
- Once the client identifies such a property, an independent valuation is undertaken to verify the property and if satisfactory, the client (as deemed sub-agent of MCCA as agent of the Funder) enters the purchase contract
- The client is then considered to have entered into a promise to lease the property and MCCA (as agent of the Funder) is considered to have agreed to only lease the property to the client
- The Funder is deemed to have purchased the property and the property is registered in the name of the client, considered to be as trustee of the Funder
- The client and the Funder are then considered to have entered into an Ijarah Muntahia Bittamleek arrangement over the property with the sole intention that at the end of the agreement period the ownership of the property will transfer to the client with the last payment
- The client pays a fixed or floating instalment with the transfer of property occurring with the last regular instalment payment
Murabahah” refers to a particular kind of sale where a seller agrees with a purchaser to provide a specific commodity to the purchaser for the deferred payment of the sale price which includes a certain profit added to his cost. The basic feature of “Murabaha” is that the seller discloses the actual cost incurred in acquiring the commodity, and the profit added thereon. This profit may be in lump sum or may be based on a percentage.
A conventional bank home loan is a pure money-on-money transaction – where the bank lends the client money for the client to buy a property. In exchange, the client pays interest to the bank until the home loan is fully repaid.
Shariah compliant home financing is based on an understanding between the client and the MCCA (also as agent of the Funder) of an Ijarah Muntahia Bittamleek arrangement with the client making pre-agreed instalments considered rent with both parties intending that the client will be entitled to clear ownership on the final payment.
In Australia, all forms of consumer home finance are regulated by the National Consumer Credit Protection (NCCP) regulations that prescribe the form and content of such agreements, even Shariah compliant home finance.
A percentage is a simply a mathematical expression.
A profit on sale can be expressed as a percentage i.e. a property bought for AUD 1Million and sold for AUD1.3Million means the property was sold for 30% profit.
A rental can be expressed as a percentage i.e. an investment property bought for AUD 1Million and leased for AUD 3,000 per month for 1 year means that property was leased at 3.6% p.a. rental.
A percentage by itself has no Shariah implication – it can be used to refer to something that is a fard obligationt i.e. rate of Zakat 2.5% or something that is not Shariah compliant i.e. conventional bank home loan interest rate 5.0%.
The MCCA rates refer to an Ijarah Muntahia Bittamleek understanding with client as reflected by the differentiated documentation whilst the conventional bank home loan interest rate refers to a lending/borrowing of money – in a money-on-money transaction, any excess paid over the amount borrowed is Riba.
Allah (SWT) says, "That is because they say, Trade is [just] like interest. But Allah has permitted trade and has forbidden interest" Quran 2:175
Interest-free means that MCCA home financing products have been Shariah certified by its Shariah Advisors as not being a money-on-money transaction.
But interest-free doesn’t mean cost-free – MCCA’s home financing products are based on an Ijarah Muntahia Bittamleek (i.e. lease-to-own) understanding with the client who pays pre-agreed instalment that is considered rental.
MCCA’s funding sources can be grouped into third party institutions and its’ own sources, such as the MCCA Income Fund.
The MCCA Income Fund is Shariah certified by MCCA’s Shariah Advisors.
The issue then is can MCCA source funding from conventional funders? The answer is: YES, if the dealing with the conventional funder is Shariah compliant.
When dealing with third party funders, MCCA acts as an agent for these funders to facilitate an arrangement of Ijarah Muntahia Bittamleek with clients that has been Shariah certified by MCCA’s Shariah Advisors. The dealing between MCCA and the third-party funder is viewed as part of this Shariah compliant framework.
Excluding of the term "interest" in contractual documentation is dictated by the legal advice issued by the legal advisors of the third-party funders. In Australia, the National Consumer Credit Protection (NCCP) regulation prescribes the use of the term “interest” in consumer home finance contracts, regardless of whether these are intended to be Shariah compliant. However, the legal advisors of some third-party funders may agree to exclude the term “interest”.
If a third-party funder doesn’t agree to excluding the term “interest” from the documentation for one of MCCA's home finance products, MCCA’s Shariah Advisors have ruled that the term "interest" in such documentation has the meaning of "rent" (for Ijarah Muntahia Bittamleek based products).
From a Shariah viewpoint; “Contracts dictates the determine principle of the meaning and purpose on the objective of the contract and not the words and expressions”
It is narrated in Sahih, that Abu Hurayrah (RA) related that the messenger of Allah (peace and blessings be on him) prohibited two sales in one sale.
The expression “two sales in one” was explained to refer to holding a compensation (sale) and a gift (donation) in one without specifying the sale price or a man say I’ll sell you this now for 100 and 150 deferred, however they separate without specifying what the purchaser requires. Such a transaction is prohibited since it involves Gharar (ambiguity/deception).
The Ijarah Muntahia Bittamleek (lease to own) involves two types of arrangements, namely a leasing arrangement (Ijarah), followed by sale arrangement (al-bai`) as the intention of both parties at the outset is that the client will have clear ownership at the end of the lease period.
At the initial stage, the financier will conclude an Ijarah arrangement with the client. Under this arrangement, the financier will appoint the client as an agent to contract the purchase of the property identified by the client. Subsequently, the financier will be considered to have leased the property to the client for a specified period.
Upon expiry of the deemed lease period or early payments, the financier will conclude a transfer of ownership arrangement of the property to the client by either:
- Payment of the last installment as a deemed consideration for the transfer, or,
- Way of promissory gift, upon finalising all installment payments.
The “Tamleek” arrangement is based on the last instalment payment basis whilst the “Amlak” arrangement is based on the gift basis.
For those products that are funded by third party funders, the rates (and changes to these rates) are dictated by these funders who take into consideration their own cost of funds and management/operating costs. MCCA, acting as agent for these funders, has limited capacity to decide on what the rates offered to clients will be.
For products that are funded by internal funding sources, such as the MCCA Income Fund, MCCA has greater flexibility to decide on the rates offered to clients. When pricing internally funded products, MCCA takes into consideration factors such as investors return expectations, the balance of demand for finance versus supply of investment, comparative product pricing in the market as well as management/operating costs.
MCCA’s home finance product rates are not intended to be comparative to the residential rental market rates, as Ijarah Muntahia Bittamleek is a lease-to-own arrangement that is intended by the parties to have a financing outcome (i.e. the client – who rents the property from a Shariah viewpoint – to have clear ownership of the property at the end of the agreement) which doesn’t happen at the end of a normal residential rental agreement.
The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) in its Shari’a Standards for Islamic Institutions 2015 in Shari’a Standard No.(9) at clause 5/2/1 states ”… The lease rental may be…a fixed or variable amount…” and at clause 5/2/3 further states “…It is then permissible that the rentals for subsequent periods be determined according to a certain benchmark…”.
As such, according AAOIFI an Ijarah rate can be both variable and expressed as benchmark (such as a Reference Rate).
The AAOIFI Sharia Board currently has Honourable Sheikh Muhammad Taqi Usmai as Chairman and Honourable Sheikh Dr. Abdul Sattar Abu Ghuddah as Vice Chairman.
A Non-Resident person is deemed to be any person with Australian citizenship or permanent residency status in Australia but resides and is employed in another country.
To qualify for consideration for a home financing product approval, such a Non-Resident person:
- Must be a High Net Worth with net surplus assets greater than AUD500,000.
- When calculating the net asset position, the inclusion of international assets such as evidenced real estate and/or investments is permitted.
- For joint applicants where one person is a citizen or permanent resident of Australia residing in Australia and the other client is a Non-Resident as defined, any application for home financing will be assessed under the Standard LMI Underwriting Policy for residents and not under the Non- Resident policy.
- Non-Resident persons who are self-employed, or are not natural persons do not qualify.
- Current income and employment credit assessment standards are to apply. Acceptable evidence of income must be translated into English and converted into Australian Dollars using the current exchange rate
- A maximum of 90% of overseas income converted to Australian dollars may be used for serviceability purposes
Yes, an Independent legal advisor registered to practice in that overseas location can witness the signing of the mortgage documents. However, other special requirements would be applicable subject to the relevant state regulations.
Yes, no early exit penalties would be applicable.
Please refer to the following guidance from the Australian government in respect to foreign persons buying residential property in Australia http://firb.gov.au/real-estate/.
Our home finance products are based on a Shariah understanding of lease arrangement that ends in ownership also known in the Islamic Finance industry as Ijarah Muntahia Bittamleek.
Yes, approved applicants will need to nominate an Australian bank account held in their name (s) from which the agreed finance instalments will be debited.
Under Shariah, Ijarah and Murabaha are considered contracts of exchange (i.e. exchange of right to occupy/use asset for payment of rent/lease or exchange of asset for deferred sale price) and not contracts of participation (i.e. where the parties share the profit or loss in a venture). As such, MCCA is not entitled to share the profit arising from the sale of the property during the Ijarah term and similarly not required to share the loss.
Lenders Mortgage Insurance is an industry standard arrangement which protects investors and funders against loss arising from the insufficiency of the security held to recoup amounts due under the contract. The cost of the Mortgage Insurance can be factored in the total finance facility.
MCCA’s Shariah Advisors have approved the use of LMI on the basis that it is mandatory in the industry particularly for higher risk financing where the amount of finance provided is in excess of 80% of the property purchase price.
Yes, we will be able to re-finance your mortgages from any bank.
Anyone, Muslim or non-Muslim can apply for finance, but approval of funds is subject to meeting the applicable assessment criteria in force at the time of application.
The client name will be registered on the title, on the Shariah understanding that during the agreement period that the client will be holding the property as agent of MCCA.
MCCA is not able to submit your application or proceed any further with your application if you don’t provide all the required documentation. The information MCCA requests is mandatory to adequately assess the application in order to obtain approval from the funder’s insurers and the funder.
MCCA is an accredited Mortgage Manager. All services will be provided in-house. We are not a broker or an originator.
The funder’s insurer or funder can at any time of the application process ask for any information that they deem is required to conform to their set guidelines.
Initial approval process which provides an estimate of how much a potential client may receive (before identifying the property to be purchased for the client to possess/occupy), based on the information provided to MCCA.
If the property does receive a lower than expected valuation, you may be required to provide a larger deposit for your application to be successful. The MCCA staff member processing your application will communicate the options opened to you with regards to progressing the application.
If the valuation has been received and is not acceptable, as an individual applicant the conditional approval is still open to you however the funder’s insurer and funder will not proceed with this current property that you wish to purchase or refinance as they deem it unsatisfactory in accordance with their guidelines.
The 10% deposit is not required to be paid in until you have received a formal approval letter from MCCA. This letter ensures that the finance application has been approved by all parties to the said finance facility.
29. Will I be refunded for the valuation and finance processing fee if my application is not approved?
No, these are fees that have been paid for the services that the Funder and the Valuer has rendered on your behalf and are therefore non-refundable. The funder’s insurers and funder need a valuation report to be able to assess your application. Paying for a valuation report or for finance processing fee does not mean an automatic approval.
While MCCA is committed to obtaining a decision on your application as soon as possible, often third parties such as funders, funder’s insurers and others such as valuers, will influence processing times.
Subject to all required information being lodged with the application, MCCA will do its best to meet the following processing timelines:
- Application process time: 3 business days
- Funders Mortgage Insurance process time: 3 business days
- Valuation process time: 3 business days
- Funders processing time: 3 business days
Mortgage Documentation Stage
- Mortgage Documentation preparation: 2 days
- Mortgage Documentation executed and returned: 2 days (once received by solicitor)
- Arrangement of settlement: 10 days
31. What happens if I feel that my application is taking longer than the expected timeframes mentioned?
Please feel free to discuss your finance application process with the local Branch Manager on 1300 724 734.
Your conditional approval letter has an expiry date which will tell you how long your approval is valid for, in general it is for 90 days.
The application needs to have all new updated documentation and be resubmitted to the various entities when you have found the said property.
(First Home Owners Grant Scheme) This application must be provided to MCCA no later than 3 weeks prior to the matter settling.
If the rental facility fee is variable, then yes it can change.
If you wish to increase your financed amount, then you will need to amend your application to be reassessed again. This may require further documentation to be provided from you.
The maximum term for Murabaha is 15 years only.
Murabaha is offered in Victoria only and not in any other states.
Yes, we offer finance for commercial properties through the MCCA Income Fund.
Not at this time.