Is real estate crowdfunding halal?

How real estate crowdfunding works

Crowdfunding platforms pool money from many small investors to buy or develop property. Instead of buying a whole house, you might put in a few hundred pounds or dollars. Deals usually come in two types:

• Equity deals: you own a share of the property (often through a company or trust). You get a share of rental income and any gain when it's sold, and you share any loss.
• Debt deals: you lend to a property developer, often as a "bridging loan" or "senior loan", for a fixed annual return. This is an interest-bearing loan, even if it's secured on property.

Why equity can be halal

Owning property and earning rent is one of the oldest lawful ways to make money, and Islam encourages real trade where profit and risk are shared. See Is buying a rental property halal?

What to check before investing

• Fixed or guaranteed returns: a promised "8% per year" on your capital usually means a loan. Real equity returns go up and down.
• Mortgage on the property: many equity deals also use an interest-bearing bank loan. Scholars differ here. Some allow it if the debt stays small (often under a third of the value, the same test used for stock screening); others say avoid it. A deal financed with an Islamic mortgage or with no debt is cleaner. See How does an Islamic mortgage work?
• Use of the property: homes, offices and warehouses are fine; a pub, casino or nightclub tenant is not.
• Preferred equity: this often behaves like a loan with a fixed return, so read the terms carefully.
• Cash held by the platform: make sure uninvested money doesn't earn interest.

Some platforms are certified by a shariah board, which takes care of most of these checks for you.

Zakat on your investment

If you hold property shares for rental income, many scholars say zakat is due on the rental profit you keep, not on the whole property value. If the aim is to resell for profit, the share is treated like trade goods. See Do I pay zakat on rental property?