Are REITs halal?
It depends on the REIT. Owning a share of rental property and earning rent is halal in principle. But most REITs borrow heavily with interest, and many rent to banks, casinos, bars or hotels serving alcohol. A REIT that passes Islamic screening is generally allowed; most regular REITs do not pass.
What a REIT is
A real estate investment trust (REIT) is a company that owns income-producing property such as offices, warehouses, apartments or shopping centres, and pays most of its rental income to shareholders as dividends. Buying REIT shares is like owning a slice of a big property portfolio without being a landlord yourself.
Earning rent from a real asset is one of the clearest halal ways to make money. See Is buying a rental property halal? The issues come from how the REIT is financed and who its tenants are.
The three main problems
- Interest-based debt. Most REITs finance their buildings with conventional loans and bonds. Islamic screens usually allow interest-bearing debt only up to about a third of the company's value.
- Haram tenants. A REIT that rents to conventional banks, casinos, breweries or adult businesses earns part of its income from them. Screens usually allow only a small share (often under 5%) of income from such tenants.
- Mortgage REITs. These don't own buildings at all; they hold mortgages and earn interest. They are haram, as they are lending businesses.
Interest is one of the most serious matters in Islam, and the Quran asks believers to leave whatever remains of it:
The Prophet ﷺ cursed the one who consumes riba, the one who pays it, the one who writes it down and the two witnesses (Sahih Muslim 1598).
Halal options
Islamic REITs exist, especially in Malaysia and the Gulf, and some Shariah-compliant ETFs hold screened property shares. You can also run your own screen with an app such as Zoya or Musaffa. The same screening logic applies to all shares. See Can I invest in stocks as a Muslim?
Purifying the dividends
Even a REIT that passes screening may have a small amount of haram income. Scholars ask you to work out that percentage of your dividends and give it to charity. See What is dividend purification?
- Rental income from real property is halal in principle.
- Most conventional REITs fail screening due to debt or tenants.
- Mortgage REITs earn interest and are haram.
- Use screened or Islamic REITs and purify any small haram income.
People also ask
Does it cost money to become Muslim?
No, it costs nothing to become Muslim. The shahada is free; certificates and classes are optional, and zakat only applies if you can afford it.
Read the full answer →Is a phone contract halal?
Yes, a phone contract is halal in most cases. Learn what to check: interest on the handset, late fees and keeping your contract terms as a Muslim.
Read the full answer →Is a 529 college savings plan halal?
A 529 college savings plan can be halal only if its investments are shariah-compliant; age-based bond funds and interest options are not.
Read the full answer →Is copy trading halal?
Copy trading is halal only if the copied trades are real, unleveraged shares in halal companies; CFDs, leverage and shorting are not.
Read the full answer →Are RSUs and employee stock options halal?
Yes, RSUs and employee stock options are generally halal if the company's business is halal. Learn about screening, options, purification and zakat.
Read the full answer →