[xiaoselangone]

For anyone browsing this thread and is interested, please skip to Post # 50.

Assalamu Alaikum Wa Rahmatullah,

Hope all of you are well inshaAllah. I do intend to ask the following questions to my Ustadh in a few weeks. But for the moment, as I need to make a decision, I was wondering if any knowledgeable 'Ulama on this forum can help me inshaAllah. For your ease, I have broken it down into sections. The queries are quite specific and detailed so there’s no pressure at all!

Introduction:
My dad managed to convince me to utilise my UK savings by buying some land in Bangladesh. As you may know, Bangladesh is one of the most densely populated countries in the world and the economy is growing really fast (GDP Growth +6% p.a.). Naturally, land is one of the most precious of resources. The expected appreciation is, by conservative estimates, 600% by 2020. In reality, this may reach 1000% (inshaAllah). This is better than anything available in the UK (where most stuff is interest based anyway). In addition, since the Bangladeshi economy is improving and the local stock exchange is attracting foreign investors, the currency (Taka) is expected to appreciate against GBP. This will work in my favour if I decide to repatriate the money back into the UK to buy a house for example.

However, such a decision raises loads of questions about zakat.

Section 1: Is the Land zakatable to begin with?
Background: According to what I have read, if you buy a piece of land with the specific intention of selling it in the future, it takes the same ruling as trade stock/merchandise i.e. every year, you have to calculate the profit (aka capital appreciation) with regards to the current market value at the time of payment of zakah. Zakat on the profit is payable in that year @ 2.5%.

References:
http://abdurrahman.org/zakat/fatwa/f...atwaIslam.html [About 40% of the way down, there is a related fatwa by Shaykh Ibn Baaz)
http://qa.sunnipath.com/issue_view.a...=4211&CATE=179
http://spa.qibla.com/issue_view.asp?...14403&CATE=239
http://qa.sunnipath.com/issue_view.a...=2426&CATE=179
http://qa.sunnipath.com/issue_view.a...ID=1514&CATE=5

Q1: In Bangladesh, what most land owners do is hand the land over to a “Builder” (A Real Estate Construction/Development company). No money is exchanged at this stage. Once the builders finish building the full set of apartments, the owners of the land will get 50% of the apartments and the Builders will get the other 50%. The land owner and the builders are then free to do what they will (e.g. sell the apartments individually, rent/lease individually etc.). So literally, no money has exchanged hands during the entire process. In this case, would such a land fall under the definition of stock/merchandise good?

NB: It’s the same as saying I have a piece of land and I invited a carpenter to build a house on it. In return, I am retaining 50% of the house and giving the rest to him. So the land itself is being built on and not being sold.

Q2: Also, often, potential buyers of the land will not buy the land outright as they may not have the financial capacity. So they will opt to pay in instalments. In such an event, the ownership is only transferred once the last instalment is paid (which may be several years after the first). In such a case, would any zakat need to be paid at all on the year-to-year profit/appreciation since one doesn’t technically own the land?

Section 2: Timing of payments
Background: From what I have read, the 2.5% of the profit aspect is payable every year. The ultimate proceeds upon selling the land will of course attract zakat, provided it remains “idle” for a lunar year (assuming we are not following Shaykh Qaradawi’s “Income Statement approach” opinion)

Q3: What if the buyer of the land does not have sufficient cash to pay the zakah every year? Can he delay paying the zakat on the profit aspect until the ultimate sale of the land?

Q4: Also, even if the buyer has sufficient cash to pay the zakah every year, is there still an option to delay paying this until the ultimate sale?

Section 3: Market Value
Background: In section 1, it was mentioned that the profit is calculated with respect to market value.

Q5: Is there anything in the Shari’ah to indicate how the market value is arrived at? E.g.
Option 1: What you as the buyer can sell it at (Accounting Term: Net Realisable Value)
Option 2: What the current brochure price is for similar locations (Accounting Term: Replacement Cost) (NB. The land is originally bought from Real Estate companies)

The price under Option 2 is usually 3 times the price under Option 1 (for the obvious reasons i.e. the Real Estate companies have a much greater bargaining power plus have much higher targeted margins than individual sellers).

Your patience and help is much appreciated! Jazakumullah Khair.

[stoneeZef]

QUOTE]Assalamu Alaikum Wa Rahmatullah,[/QUOTE]

Akhi.
I read a few points in Umdat As Salik (Reliance of a Traveller) regarding Zakat, I thought I shall share it with you. This is in no way an expert opinion. I m just going quote the sentences from the Translation of the Book.

Q1: In Bangladesh, what most land owners do is hand the land over to a “Builder” (A Real Estate Construction/Development company). No money is exchanged at this stage. Once the builders finish building the full set of apartments, the owners of the land will get 50% of the apartments and the Builders will get the other 50%. The land owner and the builders are then free to do what they will (e.g. sell the apartments individually, rent/lease individually etc.). So literally, no money has exchanged hands during the entire process. In this case, would such a land fall under the definition of stock/merchandise good? Definition of Possession:
zakat land 3.JPG

Also mentioned was:

k7.1 Merchandise is the responsibility of the
seller before the buyer has taken possession (def:
k7.3) of it. If such merchandise is destroyed (Ar.
talifa, to be finished off or used up )by itself or
through an act of the seller, then the agreement is
cancelled and no payment is due for it. If the buyer
destroys such mercnandise, he must pay its price,
and his destroying it is considered as having taken
possession of it.

So what I 'personally' understand is as soon as the the builder finishes the building and the 50% is divided among you and the builder, you become the possessor of the 50% of the building. Till then you are the possessor of the 100% of the land as the transaction with the builder will be complete only after the completion of the Building.


As for the question if the Land/building comes under Zakatable good, see the following:
zakat land 1.JPG
zakat land 2.JPG

Since you have the intention of 'trading' at the time of buying, what i understood from above is that the land is Zakatable.

Allahu Alam.

[stoneeZef]

Q2: Also, often, potential buyers of the land will not buy the land outright as they may not have the financial capacity. So they will opt to pay in instalments. In such an event, the ownership is only transferred once the last instalment is paid (which may be several years after the first). In such a case, would any zakat need to be paid at all on the year-to-year profit/appreciation since one doesn’t technically own the land? [QUOTE]

Its mentioned in Umdat As Salik:
hS.S If merchandise is sold during the zakat
year at a profit and its price is kept until the end of
the year, then zakat on the merchandise's original
value is paid at the end of that zakat year, but the
zakat on the profit is not paid until the profit has
been possessed for a full year.
(n: A second position in the Shafi'i school is
that the zakat on the profit is simply paid in the
current zakat year of the merchandise, just as one
pays zakat on the offspring of livestock (dis: h2.7)
in the current year of their mothers (Mughni almuhtaj
ila ma'rifa ma'ani alfaz al-Minhaj (y73),
1.399).)

Even if you receive 'advance payment' you are the owner of the land till the transaction is completed ie full payment is done by the buyer. So the land is still Zakatable right?
As for the advance payment, doesn't it come under profit?

I don't think we laymen can understand this, even after reading the rulings from the book. You will find a good ulema to clear this doubt.

[xiaoselangone]

[QUOTE=amr123;700354]
Its mentioned in Umdat As Salik:
hS.S If merchandise is sold during the zakat
year at a profit and its price is kept until the end of
the year, then zakat on the merchandise's original
value is paid at the end of that zakat year, but the
zakat on the profit is not paid until the profit has
been possessed for a full year.
(n: A second position in the Shafi'i school is
that the zakat on the profit is simply paid in the
current zakat year of the merchandise, just as one
pays zakat on the offspring of livestock (dis: h2.7)
in the current year of their mothers (Mughni almuhtaj
ila ma'rifa ma'ani alfaz al-Minhaj (y73),
1.399).)

Even if you receive 'advance payment' you are the owner of the land till the transaction is completed ie full payment is done by the buyer. So the land is still Zakatable right?
As for the advance payment, doesn't it come under profit?

I don't think we laymen can understand this, even after reading the rulings from the book. You will find a good ulema to clear this doubt. Salaam Sidi, Jazak Allah Khair for taking time out for your post.

Sorry maybe the way I wrote it led to some misunderstanding. For this question (Q2), I AM the buyer. So I am paying in instalments to the owner (who are a Real Estate Company). I won't be in possession of the land until I pay all instalments (which is several years down the line). I can't sell it during this period nor realise any profit.

I actually found the answer for this one Alhamdulillah (although I will still confirm it with a Mufti):


If you have actually purchased your share in the property, meaning the deal is complete and the instalments paid are part of the total sum towards the purchase of the property, then in such a case, Zakat will not be obligatory on this money paid as instalments towards the purchase of the property.

If, however, the deal is not yet complete, meaning that you have not actually purchased the share in the property, rather the instalments paid are merely something that is given in advance; then in such a case, Zakat will be obligatory on this money.

..... Therefore, if the piece of land or property has come into your ownership, then Zakat will be obligatory on the current market value of this land or property.

In other words, you will be paying Zakat either on the land or property (if the deal is complete) or on the instalments given (if the land or property has not as yet come into your ownership).

As far as the instalments that remain to be paid are concerned, it is obvious that there is Zakat on it, as this money is still with you and has not been paid.


Ref: http://qa.sunnipath.com/issue_view.a...=4211&CATE=179

What I understood from that: There are two aspects to it. One is the actual land and the other is the money being used to pay the instalments.

If the deal isn't complete, I don't own the property and thus there is no zakah on its appreciation year to year. However, since I have the money for instalments in my possession at the moment, that will still be subject to zakah under the normal rules. Allah knows best.

[xiaoselangone]

In answer to your first post:

Once again, Jazak Allah Khair for your reply.

My confusion: If I buy the land with the intention to build on it (and give 50% of the built property to the builder), does this constitute a trade? A trade is when you buy a property with the intention of "resale" which is not the case here since I won't be selling it.

Of course, if my intention is to sell the land later when it appreciates, this is a clear cut trade and I should be paying zakah no doubt. But such is not my intention.

Once I have the apartments, the rental money I earn will of course be subject to zakah as per usual.

The reason I say this:

There is no zakat on one's property holdings themselves, even if they are for commercial purposes, such as renting and leasing. There is, however, zakat on money made from such activity, subject to the normal considerations of zakatable wealth. Ref: http://qa.sunnipath.com/issue_view.a...ID=1514&CATE=5

Also:
http://www.islamicity.com/qa/action....op.shtml&-find

InshaAllah I will get in touch with Shaykh Haitham al Haddad or Mufti Ibn Adam once I return to England. They are the only 2 Ulama that I can think of who are very well conversant with such things.

[xiaoselangone]

Brother you have many facts and assumptions wrong in my opinion.

For example how can no one be owning the land at any point?

Also you don't pay zakat on the profit, you pay it on the entire amount. Please explain to me what you plan to do without extra additional comments so I can analyze it. I am getting totally confused by your analysis in the middle of the questions.

Salaam

For example how can no one be owning the land at any point?
I never said this. I said it will come into MY possession once I pay all the instalments. Till then, it's in the possession of the Real Estate Company and it's up to them to pay zakah if they wish. However, since it isn't mine, I don't have to pay zakah as appears to be the case per Mufti Ibn Adam's Fatwa.

Also you don't pay zakat on the profit, you pay it on the entire amount.
Jazak Allah Khair. I think I completely missed this point. As I am from a Chartered Accountancy background, I think I took it for granted that it's only applicable on the profit! Astaghfirullah.

Please wait for the next post where I will simplify the question.

[xiaoselangone]

Ok, here is what I want to do:

I want to buy the land from a Real Estate Company by paying the full amount all at once (forget the payments-by-instalments). After some time, I intend to invite a Developer to build a set of apartments on this building. As part of the deal, no money will exchange hands. I will retain 50% of the apartments and give the rest to the Developer. I intend to rent out these apartments eventually or maybe even sell them.

Question A: Is the land zakatable until the apartments are built?
Question B: You mentioned that zakat is paid on the entire amount which is absolutely correct. If the land is zakatable, how do I arrive at the current market price? Is this what I can sell it at or the original seller (Real Estate Company) can sell it at?

NB: Answers don't have to come from a Shafi'i perspective. From what I have been told, Hanafi fiqh seems to be way more developed in mu'amalaat.

Jazak Allah Khair.

[FelikTen]

Salaam

For example how can no one be owning the land at any point?
I never said this. I said it will come into MY possession once I pay all the instalments. Till then, it's in the possession of the Real Estate Company and it's up to them to pay zakah if they wish. However, since it isn't mine, I don't have to pay zakah as appears to be the case per Mufti Ibn Adam's Fatwa.

Please wait for the next post where I will simplify the question.

Sorry I though I read something but I went back and did not see it. I find it hard to believe that ownership does not transfer until all the installments are paid.

I cannot be sure of the truth, but it is easily determinable by looking at the deed and the contract. I find it unbelievable because if ownership is not transferred until all the installments are paid, then the seller still has ownership. And it could be that after the potential buyer has paid 80% of the installments the seller can sell the property/land to some other buyer who is ready to pay cash right then. So the one who has paid 80% of the installments what did he pay it for?

The most likely scenario is that the sale has happened on a deferred payment basis, and there is a lien/mortgage on the same property by the seller preventing a sale without his permission - and this is permissible because once the property is sold on a deferred payment basis a debt obligation arises which permits the seller to take a lien/mortgage. If this is the case and the purchase (made on deferred payment) was with the intention of resale at a later time, then one will have to take the market value of the property into consideration as a zakaatable asset, but at the same time he can claim an offsetting deduction of debt which he owes to the seller (i.e. the deferred installments). However the asset will obviously be higher in value as the resale value is taken into consideration but the debt value is the book value and is locked in.

-------------

A good point you have raised is whether or not the 50% of units given to the builder is a sale or not. This is a good question because this transfer to the builder could be considered a payment in lieu of building the building and not a sale.

However there is a principle that the worker cannot be paid from what he has worked on. So if someone is asked to make breads then his compensation cannot be some amount of the breads he has baked. I believe there are clear ahadith regarding this prohibition. Muftis/ulema should be consulted to determine whether or not the the builders taking some of the units which they have built for the owner of the land/building falls under the prohibition.

[stoneeZef]

Salaam Sidi, Jazak Allah Khair for taking time out for your post.

Sorry maybe the way I wrote it led to some misunderstanding. For this question (Q2), I AM the buyer. So I am paying in instalments to the owner (who are a Real Estate Company). I won't be in possession of the land until I pay all instalments (which is several years down the line). I can't sell it during this period nor realise any profit.



In other words, you will be paying Zakat either on the land or property (if the deal is complete) or on the instalments given (if the land or property has not as yet come into your ownership).

Oh okay. I kinda misunderstood it. So its the other way around, you are the Buyer.
the explanation you posted makes sense. So one would be paying Zakat on way or the other.

The reason I say this:

There is no zakat on one's property holdings themselves, even if they are for commercial purposes, such as renting and leasing. There is, however, zakat on money made from such activity, subject to the normal considerations of zakatable wealth. Ref: http://qa.sunnipath.com/issue_view.a...ID=1514&CATE=5

So when property is not considered as trading merchandise, but as property holdings it self, only the rent is Zakatable.
When you ask the Mufti also ask him when is land property considered as 'trading merchandise'. Because people in the Real estate bussiness buy property just sell them after some time. But since the 'merchandise' is complex, the time in between purchase and selling will be actually years.


for the clarifications. Please do post more. And also after you clear the doubt with the Mufti Saheb.

[stoneeZef]

I find it hard to believe that ownership does not transfer until all the installments are paid.

Thats what the ulema says bro. Otherwise as Abu Dahaja said, the contract should be payment 'postdated' the date of transaction. It all depends upon the contract between the buyer and the seller.

[FelikTen]

Ok, here is what I want to do:

I want to buy the land from a Real Estate Company by paying the full amount all at once (forget the payments-by-instalments). After some time, I intend to invite a Developer to build a set of apartments on this building. As part of the deal, no money will exchange hands. I will retain 50% of the apartments and give the rest to the Developer. I intend to rent out these apartments eventually or maybe even sell them.

Question A: Is the land zakatable until the apartments are built?
Question B: You mentioned that zakat is paid on the entire amount which is absolutely correct. If the land is zakatable, how do I arrive at the current market price? Is this what I can sell it at or the original seller (Real Estate Company) can sell it at?

NB: Answers don't have to come from a Shafi'i perspective. From what I have been told, Hanafi fiqh seems to be way more developed in mu'amalaat.

Jazak Allah Khair.

I believe most of the issue is answered in my above post. The current price is the current resale price. I am not familiar with the two methods of market evaluation you have mentioned, but I am pretty sure one can make a pretty good estimate as to the current resale price.

As for whether or not the property is zakaatable asset it will depend upon whether or not it is considered a sale to the developers or a payment in lieu of service. As I have mentioned regarding this you should consult a scholar, but without looking at the contract my personal opinion/guess would be it is a payment and not a sale and therefore the property would not be zakaatable since you are not sure if you want to rent them out or sell the units. If you are sure you will sell the units or at least some of the units then also you should consult someone (scholar), but I am assuming part of the value would be zakaatable.

However as mentioned if it is a payment then it will not be zakaatable, but whether or not such a payment arrangement can be made is also questionable. I believe there is some prohibition regarding such a payment arrangement. You should check with someone.

Your deferred payment issue is also addressed in the previous post.

At least the issues are now clear and you can ask proper question to the scholars.

[stoneeZef]

Ok, here is what I want to do:

I want to buy the land from a Real Estate Company by paying the full amount all at once (forget the payments-by-instalments). After some time, I intend to invite a Developer to build a set of apartments on this building. As part of the deal, no money will exchange hands. I will retain 50% of the apartments and give the rest to the Developer. I intend to rent out these apartments eventually or maybe even sell them. Add this above as a summary to the First post, so it will be easier.


The timeline of calculation of Zakat can be divided into the following;

So point A, you have money with you but no Land. So the Zakat here is only on the Money.

Point B, After purchase of the Land, building not yet built.

Point C, Building being built, construction not finished, No money exchanged.

Point D, Construction finished and 50% of the building goes to the contract Builder, and you posess 50%


Point A need not be discussed, as normal rules of Zakat is easily applicable.

[stoneeZef]

Question A: Is the land zakatable until the apartments are built?
That would fall under the following Timeline:

Point B, After purchase of the Land, building not yet built.

The question is Zakat payable on the 'total value' of the Land
or
Only from the income of the Land.?

Since there is no Income at the moment only 2 possibilities are:
1. Zakat to be paid on the total value of Land.
2. No Zakat to be paid as, there is no 'rent' being recieved from the plot.

P.s. I have heard that in case of Land, only the income is Zakatable and the total value doesn't have to be calculated. please clarify this part.

Allahu Alam.


Note: This is only my discussion/exploration of the matter - please do not act upon it without consulting scholars.

[FelikTen]

Ok. I have not found any hadith, but here is the ruling from Beheshti Zewar:

3. You asked a person to grind wheat for you and told him to take a certain amount (e.g. half a kilo) of its flour as payment.
Alternatively, you asked someone to harvest the crops and told him to take a certain amount of grain from there as payment for
harvesting. All this is fâsid.

[stoneeZef]

Question B: You mentioned that zakat is paid on the entire amount which is absolutely correct.
If the land is zakatable, how do I arrive at the current market price?
Is this what I can sell it at or the original seller (Real Estate Company) can sell it at? This question needs to be rephrased, its a bit confusing.

As I mentioned here is where the rest of the points come:

Point C, Building being built, construction not finished, No money exchanged.

Point D, Construction finished and 50% of the building goes to the contract Builder, and you posess 50%


During,
Point C, Building being built, construction not finished, No money exchanged.

Actually you are the owner of the 'whole' plot. (I have a small experience in Real estate hence I am familiar with such contracts)
Usually The 'Agreement of Contract' that YOU and the BUILDER will be signing will be that,
AFTER the construction 50% of the apartments will be 'registered' officially in YOUR name, and rest 50% in the BUILDERS name.

In India, the 'registration' is when the actual 'OWNERSHIP' is being established. I have posted Shariah terms of possession in the first page. Its similar ie the key is exchanged etc.

So at Point C: you have 100% ownership
At point D: You have 50% ownership.

I hope the part of 'possession' is clear till now.


Note: This is only my discussion/exploration of the matter - please do not act upon it without consulting scholars.

[stoneeZef]

Now for Zakat payable for Point C(Building being built, construction not finished, No money exchanged.)

If the your contract with the builder is as I mentioned above, Point C is same as Point B, you are pretty much the owner of 100% of the land.
But here is where hope1's quote could be applied:
3. You asked a person to grind wheat for you and told him to take a certain amount (e.g. half a kilo) of its flour as payment.
Alternatively, you asked someone to harvest the crops and told him to take a certain amount of grain from there as payment for
harvesting. All this is fâsid. What is fasid bro?

[stoneeZef]

Point D, Construction finished and 50% of the building goes to the contract Builder, and you posess 50%

Here clearly the transaction is already finished. So YOU possess only 50% of the total building.

So 3 possibilites arise:
1. Zakat on the 'income' AND the 'total market value' of the 50% possessed.
2. Zakat only on the 'income'.
3. Since the income is as money, it can be added with your current salary and Zakat is calculated as a whole in the end of lunar year.

[FelikTen]

Add this above as a summary to the First post, so it will be easier.


The timeline of calculation of Zakat can be divided into the following;

So point A, you have money with you but no Land. So the Zakat here is only on the Money.

Point B, After purchase of the Land, building not yet built.

Point C, Building being built, construction not finished, No money exchanged.

Point D, Construction finished and 50% of the building goes to the contract Builder, and you posess 50%


Point A need not be discussed, as normal rules of Zakat is easily applicable.

Very good summary brother.

At point B, during the time of purchase, if the brother has intention of resale after building the building then zakaat will have to be paid as there is zakat on raw materials. Again market price is the issue. Therefore point C and D are of no concern as zakaat is established at point B.

If the brother did not have intention of resale, but later changed his mind then usually there is no zakaat until sale is done. However there is a complication in this case. In this case part of the raw materials (land) was bought with the intention of not reselling. Later when one changed one's mind let's say at point C when the units are being built, more raw materials are bought with the intention of resale. So what is the ruling now? My personal guess is the raw materials bought with the intention of resale would be zakaatbale, and those bought with the intention of not reselling would not be (after change of intentions).

Note: Please don't follow my guesses. This is for discussion and exploring possibilities only so that we can ask good questions to the scholars. I know tomorrow I will keep our mufti saheb very busy.

[FelikTen]

Now for Zakat payable for Point C(Building being built, construction not finished, No money exchanged.)

If the your contract with the builder is as I mentioned above, Point C is same as Point B, you are pretty much the owner of 100% of the land.
But here is where hope1's quote could be applied:


What is fasid bro?

From my understanding the whole arrangement is fasid. Cannot be undertaken. If it is already undertaken then Beheshti provides solution:

The rule with regard to ijârah fâsidah is that whatever had been agreed upon will not be given. Instead, he will be given whatever
payment is normally made for a particular job. If it is a house, the tenant will have to pay the normal rental. However, if the normal
payment or the normal rental is more than what had been agreed upon, then the normal payment or rental will not be given. Instead, he
will be paid that which was agreed upon. In short, he will be entitled to receive the amount which is less. even though paying the builders may not look like ijarah it is ijarah. In fiqh ijarah refers to both renting and hiring.

[FelikTen]

Thats what the ulema says bro. Otherwise as Abu Dahaja said, the contract should be payment 'postdated' the date of transaction. It all depends upon the contract between the buyer and the seller.

sorry brother, what do the ulema say? ownership transferred or no?