Post on 26-Jan-2023
CONTEMPORARY INVESTMENT AND DEVELOPMENT OF WAQF ASSETS IN SINGAPOREIN SINGAPORE
Presented By:Dr. ShamsiahAbdul KarimAt International Islamic Capital Market ForumSasana Kijang, Kuala LumpurMalaysia
b20 September 2012
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“Thanks to the prodigious development of the waqf institution, a person could be born in a house belonging to a waqf sleep in a cradle belonging to a waqf, sleep in a cradle of that waqf and fill up on its food, receive instruction through waqf‐receive instruction through waqfowned books , become a teacher in a waqf school, draw a waqf financed salary and at his death, be placed in a waqf provided coffin for burial in a
f t ” ( Y di ildiwaqf cemetery” ( Yediyildiz 1990:5)
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Presentation FlowPresentation Flow
• Features of Waqf
Sharia’ • Properties that can be sequestered for waqf• Sharia ‘ issues related to waqf
Investments
• Investments of WaqfAssets• Issues on the Investments of WaqfAssets
• Traditional financingFinancing and Development
model
g• Contemporary Financing• Conclusion
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Features of WaqfFeatures of Waqf
Permanent Charitable, Permanent Dedication pious
Movable or immovable properties
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ADMINISTRATIONOFMUSLIM LAWACTADMINISTRATION OF MUSLIM LAW ACT
WAKAF WAKAF AM WAKAF KHAS
“Wakaf “ means the
Wakaf khas means a dedication in perpetuity of the
WAKAF
“Wakaf “ means the permanent dedication by a Muslim of any movable or
immovable property for any purpose recognised by Muslim
law as pious religious or
Wakaf am means a dedication in perpetuity of the capital and income of property for pious, religious or charitable purposes recognised by the Muslim law
p p ycapital of property for pious,
religious or charitable purposes recognised by the
Muslim law, the income of the property being paid to law as pious, religious or
charitable.
g yand the property so dedicated;
p p y g ppersons or for purposes
specified in the wakaf, and the property so dedicated.
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Asset AllocationProperty Based Physical assetsProperty Based – Physical assetsEquities / REITsS k kSukukAlternative InvestmentDirect Business/JV______________________________________
MUIS KuwaitHarvard
Real Estate Equities
Sukuk/Fixed Income Alternative Invt
Direct Biz /JV Cash/FD 8
Comparison of Investment Portfolio Portfolio
WaqfAssets Property /Real Equities/ Sukuk Business/ others WaqfAssets Property /Real Estate(%)
Equities/ Sukuk(%)
Business/ others (%)
Singapore 79 5 16 ( cash & cash equivalent)
Kuwait 53 47Kuwait 53 47 ‐
Trust ( Oxford 23 46/13 16Foundation)
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Investment Challenges for Waqf
Capital Guarantee NonGuaranteedGuaranteed
Income Yearly disbursement
Income ploughback to capitalp
Investment Horizon
Short term Long term
Asset classes High risk Low risk
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Shari’ah and Decision Issues On Investment of Wakaf Assets
P t tPermanent vs temporaryMovable vs immovableCapital depreciation/appreciationCapital guarantee Risk and return profileIncome accumulation vs capital appreciationIncome accumulation vs capital appreciationNegative income Istibdal and sale of waqf assetsIstibdal and sale of waqf assets
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Matching Investment Horizon With Investment Strategies*
Time Horizon What Matters
d k lImmediate Market Values
Immediate Market Val es and Immediate Market Values and Income
Perpetual Income
* (Nuffield , 5 Mar 2007)12
Waqf – Formula for sustainability
According to Nuffield , where time horizon is perpetual , the importance of market value is reduced and hence the importance of market value is reduced and hence income is the utmost importance.
Income has many meanings so he used the ‘fecundity of the portfolio’ ie the amount of cash the fund can provide for its current beneficiaries without endangering the fund’s ability to provide similar amounts of cash in fund s ability to provide similar amounts of cash in inflation adjusted terms in perpetuity.Formula of endowment sustainability is computed as y pfollows: spend rate of 130% of dividends
Therefore if S&P = 1.8%, then the fecundity should be % 8 % 130%x 1.8 = 2.3%.
Can we apply this to waqf investment ?13
Examining some Investment decisions (Kuwait Awqaf)
Mi i i i k d i l iMinimise risk and capital protectionDiversification of Investment instruments‐d ff f ldifferent portfoliosDiversification in sectors eg. Financial real estate and servicesDiversification based on geographical locationsSome investment ceilings for each sector.
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Traditional Method of WaqfTraditional Method of WaqfFinancing
H k /Hik L l l l Hukr/Hikr ‐ Long lease or perpetual lease use for renting or leasing.
lIjaratyn – two leases.Khulluw – loan contract made to waqf . Contract commonly used in Egypt for rental of waqf properties.
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Contemporary Sharia’MethodContemporary Sharia Method
S k kSukukMusharakahIj hIjarahIntifa’a
REITREITsIstisna
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MusharakahMusharakah Bond (Bond (SukukSukuk))MusharakahMusharakah Bond (Bond (SukukSukuk) )
• Development of Waqf S Omar AljuniedMixed Development at Bencoolen StrMixed Development at Bencoolen Str – 2001
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Before Refurbishment After Refurbishment
Case Study Case Study 1: 1: BencoolenBencoolen
Proceeds
InvestorsIssues S$35m Musharaka Bonds
MUIS (waqf)MUIS (Baitumal) Warees
Financial resources of S$35m
Land & financial resources Managerial and financial resources
Musharaka Arrangement
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Bencoolen StDevelopment
Case Study Case Study 1: 1: BencoolenBencoolen
Investors
Coupon Payment on Musharaka Bonds
MUIS (Baitumal) Warees
P fit h i
~3.5%
Profit sharing
Ser iced Ascott InternationalIjarah Contract
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Serviced Apartments
Ascott International
Guaranteed Income
For 10 years
Sukuk Issues for Development pof Waqf Assets
M / ll l B i l lMortgage /collaterals ‐ BaitulmalGuarantee income ‐( need to sign the lease
f )agreement upfront )Period of work in progress –Baitulmal and contractual agreementLag time from selling the property to the time of investment ‐ ( a bridging finance)
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Case Study 2: Sukuk Intifa’aCase Study 2: Sukuk Intifa aZam Zam Towers
Th W f f Ki Abd l A i i MThe Waqf of King Abdul Aziz in MeccaMunshaat‐ a Kuwait based International
CLease Investment Co.24 year reversionary ground lease with the waqfConcept of time –share vacation facilities and fractional ownership
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Fractional OwnershipFractional Ownership
Land belong to waqfLand belong to waqfBuilding belongs to Munshaat ( IDB)The munfa’a or benefit of space sold for 24 yearsThe munfa a or benefit of space sold for 24 yearsMunshaat entered BOT contract with a builder‐US$390 million contractC f d d b I l i i iContract funded by Islamic securities.Shares were price according to season, unit location and view. location and view. Shares made fully exchangeable and rep. 24‐year guaranteed right for a specific time and specific spacespecific space.
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Zam –Zam towersZam Zam towers
S i i ld i iSecurities sold prior to constructionSukuk represents a forward lease of the property
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REITsREITs
REIT d i 6REITs started in 1960sIslamic REITS – I‐ REITs started in 2006 Islamic Property Funds‐US$9 billion*
real estate ‐ 30% Private equities – 70%
First I‐ REITs issued on 1st Feb 2007‐ HadharahBoustead REITs ; plantation based.
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Successful structuring of REITsSuccessful structuring of REITs
Underlying assets
Capital Structure
Ownershipp
Tax and DividendTax and Dividend26
Consideration for Structuring Consideration for Structuring of REITs
• Commercial value
d l• Commercial value• Quality assets with high potential• Halal /Perm• issible activities• Perpetuity?
Underlying Assets
• Private REITs• Public REITs
Capital Structure
• Fragmenting the tenure• Cross border REITs with other waqf authorities• shareholders
Ownershipshareholders
• REITs have tax advantage‐ no tax on the capital growth• Waqf tax exemption status in S’pore
Tax and Di id d
q p p• Cross border REITs in turkey where waqf is taxableDividend
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Issues in Waqf REITsIssues in Waqf REITs
• Perpetuity
Assets
• Perpetuity• Halal activities• Enough quality assets
Ownership
• Muslims and non‐muslims
• Selling of waqfassets
Managment
Control
• Trustees and mutawallis
• Board of DirectorsControl
• Pte vs Public REITs
Cost and Competit
• Transaction cost‐ 7‐8%
• Return vs assets Competitiveness
Return vs assets classes
• Investors concerned
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Overcoming issuesOvercoming issues
IssuesIssues
Assets‐ perpetuity Sell the waqf assets to the REITs mgtco. on a leasehold property
‐ quality assets Consider cross border Reits
Ownership No problem as it is sold on a leaseholdOwnership No problem as it is sold on a leaseholdbasis
Mgt Control ‐ Pte vs Public To go private first solely based on cost and the sensitivity dealing with waqfand the sensitivity dealing with waqfproperties
Investors concerned A lot of public education needed
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Using Using IstibdalIstibdal, , SukukSukukMusharakahMusharakah
• Acquistion/Refurbishment New waqf6-storey office building at Beach Rd y g– 2002
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Before Refurbishment After Refurbishment
Case Study Case Study 3 3 (Asset Migration):(Asset Migration):11 Beach Rd11 Beach Rd-- SukukSukuk11 Beach Rd11 Beach Rd SukukSukuk
Many Low Quality AssetsSingle High Quality Asset
Asset MigrationParticipation from 45 awqaf Asset Migration
(5 years programme)
Shophouses Office Bldg20 units – 34,000 sf 1 building - 34,000 sf
Income: Increase 5 fold
Office Bldg
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Yield 1% Yield 3.9%
WaqfWaqf DevelopmentDevelopmentWaqfWaqf Development Development –– Case Study : 11 Beach RdCase Study : 11 Beach Rd
Musharaka Partnership
MUIS as Bond Issuer
$ $Investors MUIS waqf Fund
$0.875 mil $0.315 mil
$25 mil $9 mil73.5% Share
SPV1
Advance $34 milReturn $1.19 mil
EBITDA $1.19 mil
SPV2
Ijara AgreementBuilding Expenses
Rental $1.19 mil
EBITDA $1.5 mil
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SPV2$0.31 mil (Aft Rental $0.31 mil)
Gross Revenue $1.8 mil
Akin to REITs structureAkin to REITs structureParticipation from 45 awqafE h f d th b ildi th h h Each waqf owned the building through share ownership in the company holding the propertypropertyIncome distributed to the waqf shareholders based on the amount contributedbased on the amount contributedValuation based on market valuation of share
ti i tiupon participationAdvantages‐ owning property through share
hiownership.
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SNAPSHOT OF WAKAF IN SINGAPORE
Assets worth abt half a billion.Assets worth abt half a billion.101 awqafAnnual income of about $12 millionAnnual income of about $12 million.Annual disbursement exercise done for beneficiariesbeneficiariesAudited accounts h ll d b d k fWholly owned subsidiary to manage wakaf
development. ISO 9001 on wakaf administration and processes. 34
ConclusionConclusionThere are wide ranges of opportunities and availability of investment products for waqfavailability of investment products for waqfto invest in to suit waqf nature of investmentFinancing and development is possible for Financing and development is possible for waqf assets and should not be a deterrent for the further development of waqfthe further development of waqfWhere trusts have thrived , waqf could also mirror the manner trusts have evolved in its mirror the manner trusts have evolved in its investment and its legal advancement.More creativity should be exercise as waqf is More creativity should be exercise as waqf is based on ijtihadi laws
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