Q&A: German Islamic FinTech launches real estate crowd-investing platform SUKUUK

Germany’s inaugural Islamic financial technology company launches a crowd-funding platform based on Sharia standards and certification.

Germany’s first Islamic financial technology (fintech) company INAIA has put the finishing touches to launch the Sharia-compliant real estate crowd-funding platform Sukuuk.

The sukuk structure is based on the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) Sharia standards and certified by the Dubai-based Minhaj Shariah Financial Advisory.

The not-for-profit corporation body AAOIFI prepares accounting, auditing, governance, ethics and Sharia standards for Islamic institutions and the industry. INAIA develops innovative and sustainable solutions for principle-oriented customers, thus building a future to meet the requirements of people with special ethical needs.

Salaam Gateway spoke with INAIA’s CEOs Bilgehan Akbiyik and Emre Akyel about establishing customer-centric real estate financing.

Salaam Gateway (SG): What motivated you to develop the SUKUUK platform?

Bilgehan Akbiyik: An Islam conforming real estate financing platform for customers wanting to privately buy a property has been a matter of our heart for years. Customers and investors want a solution they understand and comprehend; something plausible regarding financing costs and fitting their value system. The opportunity to democratise participation in investments was a driver. This was the idea of designing a solution that underpins equality between the funder and borrower.

SG: Could you explain the concept in a nutshell?

Emre Akyel: We have been working on this innovative concept for over five years to make it a Sharia-compliant, tax-efficient and client-orientated offer. The potential property buyer brings equity capital into a special purpose vehicle (SPV) – a subsidiary company formed between the buyer and investors to undertake a specific business purpose – for every project. It will be an independent security trustee registering the property rights and entering the land register. When the project is finalised, the SPV is dissolved.

For the investor’s share, the buyer pays a market-value rent, entirely defined digitally and individually for each real estate based on certain variables. The buyer obtains shares in the property every month until becoming the owner. It is basically a traditional diminishing musharaka, fully digitalised for processing.

SG: What differentiates SUKUUK from conventional real estate financing options?

Bilgehan Akbiyik: SUKUUK was designed as a convenient and efficient digital product. Any private individual living and working in Germany can use SUKUUK’s digital application process. We check the customer’s creditworthiness and appraise the property the client wants to buy; determining the local rental value depending on the location and property. We can achieve this within seconds and without paperwork. This allows us to put together a financing plan for the client and, as a next step, decide if the client’s property can be published on SUKUUK as a funding project.

SG: Who carries out these checks and assessments?

Bilgehan Akbiyik: We use independent experts who provide real estate data and rental and property prices, connected to SUKUUK through a digital interface. These providers are certified by the appropriate German authorities in their respective fields. Using algorithms we process their data alongside our historical and current information.

The same applies to transactions. Payments aren’t processed via our platform, but by a payment service provider registered with and certified by Germany’s financial regulatory authority. Using trustee accounts, the service provider carries out the transactions on a fiduciary basis.

SG: How does SUKUUK differ from other property crowd-investing platforms?

Bilgehan Akbiyik: The platforms typically focus on commercial and constructions projects. However, SUKUUK finances existing properties for private households where the owner is also the tenant. This solution eliminates construction risks including incompletion. We do not believe there is an equivalent offer in the German private sector currently.

SG: How do investors benefit from your solution?

Bilgehan Akbiyik: For investors we address the global market. German real estate is attractive as, from a market, regulatory and political aspect, it is safe. Real estate crowd investing is popular, especially among first-time investors and average earners. Considering Germany’s smallest urban area apartments start from €150,000 ($165,000) to €200,000 ($220,000), the ability to invest small amounts in several properties creates a diversified portfolio and generates rental income. The minimum investment is €250 ($275).

SG: Will SUKUUK only be available in Germany?

Bilgehan Akbiyik: We shall start in Germany and expand into Europe. From an infrastructure perspective, France and Austria are target markets, but we are open to the global market on the investor side.

SG: How does SUKUUK generate revenue?

Bilgehan Akbiyik: We charge a platform fee to cover administrative and stakeholder expenses. Additionally, we earn a management fee if we successfully implement funding, securing the buyer the necessary capital to buy the property. We haven’t yet wholly finalised the conditions, but the fee will probably be staggered, depending on the property value and financing amount.

SG: What was the greatest surprise you had in developing the offer?

Bilgehan Akbiyik: On crowd-funding platforms, subordinated loans collecting investor funds for projects are often used. Subordination means the loan isn’t repaid until all credit obligations have been repaid and is often linked to interest payment. Germany has a mechanism that rules out an interest transaction and suggests profit-sharing, the definition of which can vary. That was an excellent fit because we offer our investors rental income in line with their shares; yet our solution eliminates any interest business while emphasising partnership.

SG: What was a significant hurdle in developing the solution?

Bilgehan Akbiyik: Germany’s tax landscape, particularly real estate transfer tax, is challenging. In this country whoever acquires land or real estate has to be noted as the new owner in the land register. That goes in-hand with paying between 3.5% and 6.5% in real estate transfer tax on the purchase price, depending on your federal state.

This significant amount is optimised with the SPV structure. We are currently checking and appraising this unique structure for tax purposes. However, I can already say we found a way around double taxation as far as real estate transfer tax is concerned.

Adapting a complex and bureaucratic product such as real estate financing consumed our technical and design experience to develop a unique concept providing a smooth user experience.

SG: When will SUKUUK launch?

Bilgehan Akbiyik: Technically, we’re ready to go with a list of interested parties, both buyers and investors, in the pipeline. However, we don’t want to leave anything to chance when it comes to tax assessment. We are waiting for the final report by one of the Big Four accounting firms and SUKUUK will launch once that topic is settled – probably within three to four months.

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