Islamic Finance

Crowdfunding for waqf lands could boost home ownership for Malaysia’s low-income earners, say industry experts

A construction worker rests on a rooftop at a housing construction project area in Bukit Raja Klang outside Kuala Lumpur February 13, 2014. REUTERS/Samsul Said

KUALA LUMPUR - In the face of a mounting shortage of affordable housing in Malaysia, crowdfunding could unlock the value of vast tracts of land owned by Islamic endowments, say industry experts, who believe this could facilitate home ownership for low-income Malays with substandard credit ratings.

In July last year, Malaysia’s central bank deputy governor highlighted the need for affordable homes for low-income earners. Shaik Abdul Rasheed Abdul Ghaffour estimated the shortage, based on data from 2014, at 960,000 and warned the number could rise to one million units by 2020 if no further measures were taken to increase affordable housing supplies.

Umar Munshi, co-founder of Ethis Ventures and managing director of Shariah-compliant crowdfunding platform Ethis Crowd, believes tapping into lands owned by awqaf, or Islamic endowments, with peer-to-peer (P2P) funding can help increase a greater supply of housing stock and eventually drive down prices.

Munshi knows a thing or two about crowdfunding for real estate – his Singapore-based Ethis Crowd, which has a regional focus, has raised 5,590,719 Singapore dollars ($4.1 million) that has helped to build 6,360 affordable houses since it started in 2014.

“We can really push it further if we can manage to tap into assets owned by the Muslim community,” Munshi told Salaam Gateway. “There is a lot of waqf land in Malaysia.”


Waqf lands are donated to Muslim communities either for religious or philanthropic purposes. Malaysia’s Department of Awqaf, Zakat and Hajj estimates there are over 11,000 hectares of waqf land across the country.

According to a recent local study, the value of this land was worth 4 billion Malaysian ringgit ($967,940,000) in 2017. The same academic paper suggests there is "no clear understanding on whether the needs of beneficiaries are being fulfilled by the development of waqf land”.

On December 2, the Ministry of Housing and Local Government announced it intends to investigate the potential of building affordable houses on waqf land, and make it mandatory for state governments to offer more endowments for the purpose.

“From my understanding, more than 95 percent [of awqaf land] is not developed, it’s just dormant,” said Munshi.

He believes developing awqaf parcels could reduce property prices that are pushed up by the costs associated with commercial development.

“If we have waqf land, where the opportunity cost is zero because it’s land for the people, then prices can go down,” said Munshi.


The problem for many low-income Malaysians and waqf developers is access to credit.

Individuals with debts and poor credit ratings will struggle to secure financing to buy their properties, while developers often have difficulty securing loans to turn waqf land into homes.

Crowdfunding could offer a solution to this as it gains popularity in Malaysia. In 2017, just 37.15 million Malaysian ringgit was raised through P2P financing from 628 completed campaigns, according to the Securities Commission (SC).

By June 2018, this figure had doubled to 80.28 million ringgit from 1,160 campaigns.

Amid this rising popularity for crowdfunding, the Malaysian finance minister announced in November’s budget speech that a P2P financing framework to be regulated by the SC will go live in the first quarter of 2019 for first-time home buyers.

Prime minister Dr Mahathir Mohamad said afterwards the property crowdfunding solution would lead to one million houses being built in 10 years.

The scheme will offer first-time home buyers the chance to pay only 20 percent to own a house while the remaining 80 percent will be covered by investors via a peer-to-peer financing framework. This, he said, would enable more people to own houses.

The downpayment could be settled from their savings, loans or withdrawals from Malaysia’s national Employee Provident Fund.


Those without access to bank finance could in the future turn to crowdfunding services that incorporate zakat, the Islamic obligatory tax, Munshi believes.

“Zakat can be used only for specific purposes, and one of these is to pay off someone’s debt,” he said.

“How we allocate zakat to pay all the debt is another mechanism that we would have to look at. But if people can choose to give their zakat to those who are potential home buyers who really need it and deserve it in a sense, then a few thousand ringgit can be used to pay their debt so they can pay for their house.

“If I were a rich individual, I wouldn’t mind giving a portion of my zakat to help give families a home. Plus they are obliged to pay back,” he added.


Small-time developers too could benefit from crowdfunding, especially smallholders looking to transform their land into properties through joint venture with contractors, property investment consultant Ahyat Ishak told Salaam Gateway.

Whereas big developers with thousands of acres of land and a multi-decade plan rarely struggle to attract banks for finance, those with 10 or 20 acres, often adjacent to prime lands, often have difficulty.

“Usually these smallholdings will be adjacent to those prime lands, and they are often reserved for sale only to Malays. It is like a sub market and is in very high demand, but banks do not support these people,” Ishak said.

“But what if we could liberate the landowners and give them financial power through crowdfunding? If this happens, it’s going to blow up the market. Suddenly this sub market which has always been dormant, is going to unlock the value of these smallholders,” added Ishak.


Malaysian property developer Ali Majis believes crowdfunding can help companies like his embark on social impact projects, especially those that provide low-price housing for impecunious families.

He said otherwise it would be foolhardy to start a sizeable project knowing that your customer base would be unable to secure financing to buy your completed houses. It will also help with gaining financing for projects.

“When we look at how to bring social impact developments, we try to bring in investors through crowdfunding,” Majis told Salaam Gateway.

“Through this approach we can start constructing a lot of properties for affordable housing, because without eligible buyers we will be stuck. We need a system like crowdfunding to attract people with problems getting finance. 

"Developers need initial funds before the end-financing kicks in, but not all developers are able to come up with these initial funds, especially if they don’t have a good network of backers. Crowdfunding can work for both sides, for the buyers and also for the developer,” said Majis.


Property investment consultant Ishak, who regularly conducts seminars for potential investors, especially young ones, said there has been a groundswell among Malay investors attracted to property crowdfunding.

Many are enticed by mooted returns of 10 percent or higher on their investments, as well as more ready access to finance through the government’s plans.

“That beats ASB [Amanah Saham Bumiputera, a state-linked unit trust fund for Malays] which might not even give 7.25 percent this year, and there’s a worry that it will be less. When you put your money into crowdfunding, it’s a huge opportunity that could help them make a little more money at a faster pace,” said Ishak.

With a current housing project underway in Jakarta, Ethis Crowd has raised almost 254,000 Singapore dollars ($186,286) out of its goal of 330,000 Singapore dollars. According to Munshi, the project will enable 54 low-income families and suggests returns of 18-19 percent for investors.

“We have investors from 65 countries through our platform for our Indonesia project. Why did they take that step? One group that comes to us is definitely Islamic investors. Those who are looking for Shariah-compliant opportunities and returns,” he said.

“We also see a lot of millennials who are aware of what Islamic investment is about. They learn about interest and what is permissible or not. As long as things progress nicely, I believe it will snowball quite quickly.”

(Reporting by Richard Whitehead; Editing by Emmy Abdul Alim

Our Standards: The Thomson Reuters Trust Principles

© 2019 All Rights Reserved


Islamic social finance