In my first two weeks on the job, I had to go on an outbound call. A client had deposited a huge sum of money into a current account that hadn’t seen any activity at all for a few years. We went to investigate both the source of funds (to see if it was a possible money laundering attempt), as well as to see if we could persuade them to bring the money under wealth management (if it was legitimate).
When we got there, we discovered that the client was an agent for a society of Muslims. The client expained that Muslim investors had joined together, pooled money, and bought real estate. The property had been deveoped and resold and the proceeds were now sitting in the current account, prior to being paid out to investors.
In effect, the client had been running a mini-REIT. REITs might have been permitted as REITs only in the past two years, but this client had gone and built a synthetic REIT on his own. Amazing.
What I learnt from this is what an awesome investment avenue a properly managed REIT can be for Muslim investors. Very orthodox Muslims don’t invest in debt because of the Koranic prohibition on interest. When they do keep money in bank accounts, they donate the interest they earn to charity. An investment vehicle based purely on real estate is ideal for them (so is equity for that matter, but the stock market has left too many people in India spooked- more on that later, maybe).
Of course, for REITs to have an impact among individua Muslim investors, entry sizes have to come down from the levels they are at today: five million rupees. I don’t think that’s a huge problem; REITs are in their infancy and the ticket size will definitely drop. Accessibility will come in with REIT focused mutual funds.
