Real Estate Investment Vehicles
Luxembourg is a leading global location for real estate funds with cross-border investments. A number of fund managers from the MENA region have created shariah compliant real estate investment vehicles in Luxembourg. They are drawn by an attractive tax regime, well-adapted legislation, the availability of professional expertise and a skilled, multi-lingual workforce.
Real estate fund managers may structure their investments in more than one way, for example via the use of mudaraba or an Ijara contract. The mudaraba model mirrors the conventional structure of a real estate fund.
There are various suitable vehicles available. The selection of the right vehicle depends on the style, operating model and tax structuring of the fund. Two popular structures are the specialised investment fund (SIF) and the investment company in risk capital (SICAR).
Neither a SIF nor a SICAR is required to comply with detailed restrictions under the Luxembourg law. Nevertheless, a SIF must adhere to the principle of risk diversification, that is, the fund may not invest more than 30% of its assets in a single investment. In the case of a real estate SIF, this requirement can be met by investing in diversified geographical segments or types of asset. By contrast, a SICAR may concentrate its holdings in one project; the only requirement is to invest in risk capital.
The brochure Luxembourg Vehicles for Islamic Finance Structures provides greater detail on the structuring of shariah compliant real estate investment vehicles.