Property Projects

Al Mabroor Shari’ah Property Product Overview

The Al Mabroor Shari’ah property product deals with direct property ownership through a common law partnership.

There are two types of products.

a. Regular Income products

b. Capital growth products

Regular income product

1. Many investors are looking for a regular income, coupled with a degree of capital growth over the medium- to longer term. Common examples are those dependent on savings for a regular disposable subsistence, e.g. widows, retirees, pensioners, etc.

2. Suggested minimum investment is R 100 000. Those wishing to invest lesser amounts will have to make their own private arrangements for pooling of funds. Al Mabroor will only register a single investor with a minimum of R 100 000.

3. Each property project shall be divided into a maximum of 20 portions. The portions will be divided pro rata the contribution made by each partner. Thus each property project shall be owned by 20 natural persons (or less).

4. All the schemes can be used for residential, commercial or industrial property. However, if commercial property is to be rented out, we need to put rules in place as to which types of tenants would be acceptable. For example, renting out to a liquor store, casino, etc. will not be acceptable.

5. Al Mabroor Projects will essentially be a management agent. It shall service property, collect rents, manage accounts, and regularly distribute rentals received. It shall also manage a reserve fund on behalf of the partnership.

Example Income Product

Say R 5 000 000 is needed to acquire a commercial property. The net monthly income on the property is R 40 000.

The breakdown of contributions of partners, their pro rata ownership and monthly income distributions will be as follows.

Partner

Contribution

Pro Rata Ownership

Pro Rata monthly income distribution

1

R 100 000

2.00%

R 800

2

R 100 000

2.00%

R 800

3

R 100 000

2.00%

R 800

4

R 100 000

2.00%

R 800

5

R 100 000

2.00%

R 800

6

R 140 000

2.80%

R 1 120

7

R 150 000

3.00%

R 1 200

8

R 150 000

3.00%

R 1 200

9

R 200 000

4.00%

R 1 600

10

R 200 000

4.00%

R 1 600

11

R 200 000

4.00%

R 1 600

12

R 200 000

4.00%

R 1 600

13

R 280 000

5.60%

R 2 240

14

R 280 000

5.60%

R 2 240

15

R 300 000

6.00%

R 2 400

16

R 300 000

6.00%

R 2 400

17

R 300 000

6.00%

R 2 400

18

R 400 000

8.00%

R 3 200

19

R 400 000

8.00%

R 3 200

20

R 1 000 000

20.00%

R 8 000

Total

R 5 000 000.00

100.00%

R 40 000

NOTE: All amounts throughout this document are for illustration purposes. Actual figures will vary from property to property.

 

Capital Growth Investment

6. Investors who do not require a regular income will opt for this product.

7. Al Mabroor can identify a certain project. The funds for the project will come from a maximum of 20 investors, with Al Mabroor as the managing agent.

8. A project can consist of any of the following:

(a) Simply buying and selling existing property.

(b) Buying property, improving it, and selling.

(c) Buying land, building thereon, and selling.

9. Investors can give an open mandate to Al Mabroor, or a closed mandate to Al Mabroor. In an open mandate, Al Mabroor will have the power of attorney to invest funds and act on behalf of clients without consulting with clients on a particular project. In a closed mandate, the use of funds for a particular project will need approval of the client. The open mandate will be especially helpful and practical in the case of acquiring properties on auction.

10. An investor may have a combination of open and closed mandates. For example, an investor can deposit R 1 000 000, of which R 300 000 is on open mandate, and any investment more than R 300 000 will require approval.

 

Example Capital Growth

Say R 4 000 000 is needed to purchase a distressed property. A further R 1 000 000 is needed to improve the property and the property would then be able to sell for say R 7 000 000. The whole process will take say 15 months.

The breakdown of contributions of partners, their pro rata ownership and profit distributions at the end of the project will be as follows.

Investors

Investment amount

Pro Rata ownership

Distribution at completion

1

R 100 000

2.00%

R 140 000

2

R 100 000

2.00%

R 140 000

3

R 100 000

2.00%

R 140 000

4

R 100 000

2.00%

R 140 000

5

R 100 000

2.00%

R 140 000

6

R 140 000

2.80%

R 196 000

7

R 150 000

3.00%

R 210 000

8

R 150 000

3.00%

R 210 000

9

R 200 000

4.00%

R 280 000

10

R 200 000

4.00%

R 280 000

11

R 200 000

4.00%

R 280 000

12

R 200 000

4.00%

R 280 000

13

R 280 000

5.60%

R 392 000

14

R 280 000

5.60%

R 392 000

15

R 300 000

6.00%

R 420 000

16

R 300 000

6.00%

R 420 000

17

R 300 000

6.00%

R 420 000

18

R 400 000

8.00%

R 560 000

19

R 400 000

8.00%

R 560 000

20

R 1 000 000

20.00%

R 1 400 000

Total

R 5 000 000

100.00%

R 7 000 000

 

Closed Mandate Project

11. Al Mabroor shall indentify a project, draw a complete business plan, estimate returns, plan time-frames, and provide full disclosure of the interest of Al Mabroor in the project, etc. All disclosures will be done in terms of Notice 459 of the Department of Trade and Industry of 2006.

12. After presenting the business plan, the first 20 investors to agree will be made partners in this specific project.

13. The property shall be registered in the name of the specific investors who have elected to be partners in the particular project.

 

Al Mabroor’s Return

14. In the Regular Income Investment, Al Mabroor shall be the management agent in as far as leasing out the property and collecting rentals. For this Al Mabroor shall be entitled to a percentage of the rentals received, for example 5%. This figure is negotiable with the investors, and should be disclosed upfront.

15. In the case of the Capital Growth Investment, the partnership shall be liable for all expenses related to the property, such as conveyancing fees, transfer duty, maintenance of property, etc. Al Mabroor shall, at its own expense, be responsible for sourcing the property, sourcing an appropriate purchaser and finalising the deal. For this Al Mabroor shall be entitled to a percentage of the net profits. In other words, this is a contingent fee. Should the project not be profitable, Al Mabroor does not receive any gain. Should the project be profitable, Al Mabroor shall receive 10% of the net profit. Al Mabroor is not required to invest any capital in the property, but only its effort/labour/management of the process.

 

General Rules of any of the Partnerships

16. A detailed Partnership agreement shall be drawn up.

17. The partners shall share pro rata in Profit and Loss.

18. A partnership may, under South African law, not have more than 20 partners. It is therefore the intention that no more than 20 persons shall have an interest in the partnership.

19. At any given time the assets of a partner shall consist of cash, or fractional ownership in a property, or both.

20. All profits shall be capitalised upon realisation.

21. No interest shall be paid by the partnership on any committed capital or on any distributable amount allocated to any partner but not yet distributed to it.

22. Any partner wishing to exit shall give Al Mabroor (the managing agent) one month’s prior notice.

23. If there are other investors on the waiting list, the existing partner’s share in the property may be sold to a new incoming partner. If no willing buyer is available, the existing partner will receive the balance of his pro rata cash, and title deeds reflecting his respective co-ownership in the property.

24. The same as in 23 above shall apply, with the necessary changes, upon the death of any partner. The executors or heirs will have to then register as the new co-owners.

25. The partners may not make any drawings from the partnership funds.

26. The partnership shall be liable for:-

a. all of the reasonable expenses incurred in the establishment of the partnership including but not limited to legal, accountancy, printing, postage and other direct costs of establishment;

b. all expenses properly incurred in relation to the ongoing business and administration of the partnership including, without limitation, legal fees, auditors’ fees and litigation costs.

c. all transaction and potential transaction related expenses including, without limitation, advisory costs, stamp duty;

d. all investment holding costs, including the costs of custodians or nominees;

e. any taxes, fees or other charges (including VAT) imposed on the partnership by any governmental authority (whether within or outside of South Africa);

f. costs and expenses payable in connection with the dissolution and liquidation of the partnership;

27. No loans from the partnership funds to any partner, or any other party, will be allowed, and accordingly the partners will not hold any loan accounts with the partnership.

28. No partner may represent the partnership, save where Al Mabroor itself is a partner. Al Mabroor shall be the sole representative of all the dealings of the partnership.

29. No partner shall:

a. employ any moneys, property or effects belonging to the partnership or engage the credit thereof or contract any debt on account thereof;

b. compound, release or discharge any debt due to the partnership;

c. do or knowingly suffer to be done any act or thing whereby the property or effects of the partnership or any part thereof may be attached, seized or taken in execution;

d. encumber, mortgage or charge his/her/its interests in the partnership or in the profits thereof;

e. pledge or alienate or dispose of or in any other way deal with any assets of the partnership to the detriment of the partnership or any partner thereof.

30. No partner shall be entitled to renounce the Partnership or give notice to dissolve it save as expressly provided for in the Partnership agreement and a repudiation shall not dissolve the Partnership.

General Rules regarding Transactions

31. All transactions shall be for cash, and no credit shall be offered.

32. All movement of funds shall be via the relative bank accounts. No hard cash will be dealt with.

33. All the various schemes shall strictly comply with the relevant laws and regulations of State, and be as transparent as required by sound accounting principles.

34. All deals shall be restricted to property in South Africa.

Trust Account

35. Al Mabroor shall establish a trust account at a reputable bank.

36. All funds received from investors shall be kept in this account.

37. A person (or committee) external from Al Mabroor shall be appointed by the Darul Iftaa, called the Protector.

38. Whenever payments are to be made from the trust account, Al Mabroor is to make a formal written request to the Protector for release of funds, providing full details of the nature of the transaction for which funds are being released. The Bank is not allowed to release funds without the written approval of the Protector.

39. All incoming funds belonging to any investor are to be kept directly and immediately in the Trust account.