Modern Forms of Interest in the Real Estate Market

Modern Forms of Interest in the Real Estate Market and how to identify them

Real estate business involves endless intricacies which often provide the base for artifice and fraudulent activities. One of the biggest trickeries in the real estate market is modern forms of interest that are often presented as vague terms and conditions. When dishonesty prevails, this not only damages the market dynamics but, consequently, also affects the state of morality & economy in a society.

Islam discourages and prohibits injustice in business and similarly all walks of life. Islam provides a framework (sharia) that eradicates injustice, fraud, and trickery while executing real estate transactions.

This article will help you identify the unislamic practices that are mainstream in real estate market during real estate transactions. These practices have actually taken new forms of interest that most people are unaware of.

Islamically, the general requirements to execute a transaction are:

  • Both seller and buyer have reached Maturity (Buloogh).
  • Both are considered to be in the state of Sanity (‘Aql).
  • Any of the two is not being compelled to execute the transaction.

Sell Lawfully Acquired Property

The property you intend to sell must be lawfully acquired and has been bought through a halal income/way. 

A stolen, seized land by wrong manner/s [usurped (Ghasbi) property], or obtained through gambling should not be sold or purchased – as logically, it would later arise conflicts and potentially cause disputes. 

Do not override an ongoing sale

“A person should not enter into a transaction when his brother is already making a transaction…”

– Sahih Muslim, 3812

In the light of the above mentioned Hadith, Islam does not encourage the bidding/auction on a property. When a person shows his intention to buy a property, you must respect that and let him negotiate with the seller despite that you too want to purchase that property. If the deal was not closed with the former person, you can then approach the seller to purchase.

Can not Sell Property before Possession!

“Do not sell what you do not possess.”

– Sunan Abi Dawud 3503

“Hakim bin Hizam said:

“I bought some food and made food and made a profit on it (by selling it) before I took possession of it. I came to the Messenger of Allah and told him about that and he said: ‘Do not sell it until you take possession of it.’ ”

– Sunan an-Nasa’i 4603

According to the above ahadith, you must not sell a property until you have taken possession of it. But it is widely prevalent in our real estate market that investors trade in property (files) before taking possession of it.

  • A commonly known example of such trade is plot files bought on installments. An investor would buy a plot on installments and would sell that plot file for a profit while he has not been given possession of the plot – which is an unIslamic practice.
  • Shops offered in underconstruction malls and plazas also fall in this category. Even if you have made the payment, the shop does not exist yet and is not in your possession despite all the paperwork. Besides, buying a Shop that is yet to be built is itself wrong in the first place.

In both these examples, the property being sold is Maj’hul (a property whose details are unknown). However, it is permissible to sell a property if you haven’t made the full payment but have been granted possession of it (because it is Ghair Maj’hul which means it exists and its location and owner is known).

Modern forms of Interest (Sood)

Islam strictly prohibits taking or paying Interest. Investing in a deal that is associated with any kind of unknown and unclear terms and conditions is equally disliked in islam (because oftentimes it is related to interest). 

The prevalent examples are Insurance (Bima) Policy and mortgage. These are modern forms of Interest (Sood ((Riba in Arabic))) and often include twisted terms & conditions. Some examples from real estate are mentioned below:

  • For example, Houses offered on Loan or Installmets by banks are actually being sold on interest. Let’s dig into this a little to see how it actually works! The same house is offered on an elevated price when purchased through loan but will be offered at a discounted price when purchased on a bulk payment. The extra amount charged alongwith the loan is indeed interest. 
  • Besides, many banks while selling houses on installments also charge rent from the buyer for the same house (until all the installments are paid). Islam forbids making two agreements for one property. Either you can buy a house or you can take it on rent. It is noteworthy here that the rent being paid is interest (Sood).
  • Another example is terms and conditions associated to Beyana (Downpayment). Nowadays, it is prevalent that the investor would pay double the amount paid beyana if he cancels the deal. Here, the extra amount seller received is haram because he hasn’t earned it rightfully. If a deal gets cancelled, the seller should simply return the buyer his money and that should be the end of the matter.

The above mentioned examples are a few of the modern forms of interest in real estate market. A muslim is prohibited from taking or paying interest, be it any form and he/she should also keep from promoting such practices that could involve interest.

Reference: https://profdrfazalelahi.com/dars/rishwat-de-kar-koi-kaam-karwana-haram-hai/

Ethics for Brokerage

A broker is the third party involved in a real estate transaction. Hence, the broker is also subjected to the shariah regulations regarding the sale and purchase of a property. A broker must keep the following points into consideration when selling a property:

  • A broker must not portray himself as selfless when in reality, he wants to make a sale to earn his share (by selling the property). It would be equivalent to hiding true intentions. Such behavior can compel the buyer to trust you blindly and he might end up making a decision which he, indeed, was not intending to. The following Hadith further emphasizes this point:

“Anyone who practises medicine when he is not known as a practitioner will be held responsible.”

– Sunan Abi Dawud 4586

According to the above-mentioned Hadith, a person who pretends his expertise while doing a business will be held responsible. The same applies to the real estate transactions: if a broker makes a client believe in his expertise and then coaxes him to make deal (for his own monetary benefit), he will be responsible in this world and hereafter. 

  • Moreover, some brokers sell a property at an elevated price and keep the extra profit for themselves. Both the owner of the property and the buyer are unaware that the broker has secretly charged an extra amount on that property. This is an unIslamic practice and money earned through such a trickery would be haram. 

“Both parties in a business transaction have a right to annul it so long as they have not separated ; and if they tell the truth and make everything clear they will be blessed in their transaction, but if they conceal anything and lie the blessing on their transaction will be blotted out.”

– Mishkat al-Masabih 2802
  • Similarly, some brokers go to extreme lengths to convince a naive seller (usually an overseas client) that his property’s cost would be a lot lower than what he thinks. While the actual cost of the property is way higher than what the broker is suggesting. This is an outright deceit. 

Refer to the following hadith for such a situation:

مَنْ غَشَّ فَلَيْسَ مِنَّا

‘Whoever cheats, he is not one of us.’

– Jami` at-Tirmidhi 1315

Reference: https://profdrfazalelahi.com/dars/karobar-ka-sharai-tareeqa/

An Unknown and Unclear Deal

Before going into detail, read the following Hadith:

Jabir b. Abdullah (Allah be pleased with them) is reported to have said that Allah’s Messenger (ﷺ) forbade the sale of a heap of dates the weight of which is unknown in accordance with the known weight of dates.

– Sahih Muslim 1530a

This Hadith apparently forbids deals that sound unclear and uncertain. Let’s take a look at a few examples in this regard:

  • A common example of an uncertain deal is Plots offered by housing socieities. Many new Housing Societies often start selling the plots before acquiring the land. Moreover, the society is not sure on what date the land would be acquired. In such an uncertainty, Buying and selling should be refrained until the acquisition of land. Otherwise, this transaction would be Islamically invalid. 
  • Another example is investing in real estate projects which return you some rental income. You are not sure whether the seller actually has those properties in his possession or he is investing your money elsewhere. Such transactions are not encouraged in Islam where you do not know the whereabouts of a property you’re investing in. 

Such a property is called Maj’hul or Majhūl al-mālik – a property whose owner/s is not known.


Islam’s sharia ensures fair deals and transactions in all kinds of businesses including real estate. It is in our own best to follow the Islamic sharia while executing real estate transactions. This can save us from monetary loss(es) and dodging in this world and will also help us in the hereafter.

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