Sabana Shari'ah REIT

2.17 cent for 4Q 2011. Yield of 9.6%.

Having read quite a bit about Islamic Finance before, let me share some basic knowledge about it.

Shariah compliant is not simply just not being invested in business involving alcohol, gambling or prostitution. A very important concept is that riba (interest) is strictly forbidden. For loan, only quad is allowed, in which loan is make out of goodwill without any riba. So how do they make profit?

Profit-Loss sharing agreement. This is the most common way of financing in which the financier is known as Rab-ul-Maal and entrepreneur as Mudarib. Financier will provide the capital and entrepreneur will provide the work. the financier will borne ALL losses as the entreprenuer is deemed to have wasted his effort unless there is negligence on the part of the entrepreneur. There will be a profit sharing agreement in which the profit is shared among them in a pre-determined ratio, but in all cases the financier should never have a bigger share than the entrepreneur.

For e.g., you want to buy a house and you look for islamic finance to pay for it. You pay 20% of it and the bank pays 80% of it. Every month, you pay a rent (maybe $1000), this $1000 is split in the 8:2 portion. Then maybe, every quarter, you will pay a sum to buy back maybe 10% of the stake from the bank. The next time round, the $1000 will be split in 7:3 portion. This goes on until u got full ownership of it.

However, for this REIT, it is not that fortunate to be involved in such profit-loss sharing agreement. It is funded by murabaha in which the bank purchased the commodity and sell it to you. A pre-determined mark-up is agreed before hand and this will be the profit to the bank. This sounds more like interest and hence not all Shariah scholar will agree to it. But the REIT has a very prominent shariah scholar in finance called Dr. Mohamed Ali Elgari.

Generally, Islamic finance is more risky academically but practically they are less so as they don't make money out of money.

thanks for the education!

Hi Shanrui,

How do you rate Sabana as this is a Shari'ah reit ? Thank for your advice.

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Hi Shanrui,

How do you rate Sabana as this is a Shari'ah reit ? Thank for your advice.

First of all, I am definitely not an expert in the field of islamic finance, I just happen to have read up quite a bit about it from articles and books.
Secondly, my understanding of REIT is very basic compared to many others here.

The reason why I say practically Islamic finance is less risky is because of the fact that they are not allowed to be involved in any activity whose result is uncertain, this will be deemed as a gamble. Thus, they are normally not allowed to hedge, trade or involved in all sort of derivatives.

What I feel is that it really does not differ much from the std REIT other than that it cannot be involved in any haram(non-permissible) business and that financing are done through Islamic financing methods, which I don't think our local banks offer. Islamic Finance is the fastest growing sector in finance and it is very undeveloped at this stage. The first central bank sukuk (bond)was released only in 2001. Therefore, with a fast growing demand but limited supply, this REIT is positioned to attract funds especially from the middle east. In terms of development in islamic finance, Malaysia, Iran, Bahrain and Saudi Arabia are the most developed, with Malaysia being the first to issue guidelines on it.

To conclude, you should apply the same method of valuation for S-REIT for sabana, there's no reason why one should view it differently unless your religion is Islam.

(22-01-2012, 02:25 PM)shanrui_91 Wrote: financing are done through Islamic financing methods, which I don't think our local banks offer.

OCBC offers Islamic banking in Singapore.

haha, i am surprised that OCBC is involved in this business as currently most of them are either pure islamic bank or bulge bracket firm like UBS, HSBC and e.t.c

anyway, a Happy Chinese New Year to all

(22-01-2012, 10:43 PM)FFNow Wrote:

(22-01-2012, 02:25 PM)shanrui_91 Wrote: financing are done through Islamic financing methods, which I don't think our local banks offer.

OCBC offers Islamic banking in Singapore.

DBS also, through their stake in Islamic Bank of Asia

Islamic banking is a rising trend, mainly for the wealthy people in the Middle East.

no doubt, it will be a matter of time before other banks start offering an Islamic banking division

The impression I had from the AGM yesterday was the management were a rather conservative team,if not because of one hooligan retail investor who shouted at the CEO when he made his maiden speech , the overall atmosphere would have been better and believe the CEO will not be ' avoiding ' the retail investors during the tea break.
The management made it clear that Sabana will only concentrate in Ind. properties in Singapore ,because this is what they are good at , and this was the reason why the cornerstone investors invested in it.