Canadian Muslims 'abandoned' buying homes for lack of halal mortgages: experts

For many potential homebuyers in Canada, getting a mortgage can be a challenge due to high home prices. But for members of Canada's Muslim community, those looking to buy a home may face an additional obstacle – securing a mortgage that fits their beliefs.

Sharia, the legal entity of Islam, prohibits the use of usury, otherwise known as interest charged on loans. As a result, conventional mortgages offered by Canadian banks, which charge clients interest, are not considered Shariah compliant, or halal.

Mohamad Sawwaf is the co-founder and CEO of Manzil, a Toronto-based Islamic bank. Because Canada's major banks do not currently offer Shariah-compliant mortgages, this leaves many members of the Muslim community "financially excluded" from obtaining them, Sawwaf said.

“They basically keep themselves outside this conventional banking system because it is not in line with their religious or ethical principles, so it becomes very difficult to access financing,” Sawwaf told CTVNews.ca in a telephone interview on Oct. 13. “Not everyone receives the same benefits when it comes to banking.”

According to Statistics Canada, Islam is the second most frequently reported religion in Canada, with nearly 1.8 million people by 2021. In 20 years, Canada's Muslim population grew to 4.9 percent in 2021 from two percent in 2001. Companies such as Manzil and the Alberta-based Canadian Halal Financial Corporation offer financial alternatives that they consider halal.

Halal mortgages can be obtained through two common Islamic financing structures, Sawwaf said. The first is called murabahah, or cost-plus financing. Through this method, an Islamic finance company buys a house directly from the seller, becoming the owner of the house. The company would then immediately sell the home back to their clients at an embedded profit rate, Sawwaf said. The term of the contract can be up to 10 or 15 years and involves fixed monthly payments.

The second option is known as musharaka, which is when the company and their clients make transactions as partners. Through this method, the client's name will also appear in the home title. The company started out as co-owners of the property while their clients occupied it. With each mortgage payment, the company's equity position declines until their client owns the house completely, Sawwaf said. The amortization period is usually between 25 and 30 years.

While these options may not involve interest, they do come with additional fees imposed by financiers, said Imam Mahmoud Omar, who works with the Canadian Halal Financial Corporation. The company bases mortgage costs on the Bank of Canada's overnight interest rate, which currently stands at 3.75 percent after another hike on Wednesday.

“This is an unfortunate factor,” Omar told CTVNews.ca on Oct. 13 in a telephone interview.

Prices can also be adjusted depending on how much capital the financial institution has, or where it gets this capital from. Compared to large banks, small companies like Manzil have access to less capital. As a result, they may charge more for their products as loans become riskier, Sawwaf said. Both financing options also require a large down payment, usually a minimum of 20 percent.

According to the Canadian National Household Survey conducted in 2011, the median home ownership rate among Canadian Muslims was the lowest of all included religious groups, at 44.3 percent. Thomas Lukaszuk is a director and co-founder of the Canadian Halal Financial Corporation. Most Canadian Muslims are renters because they can't get a conventional mortgage, he said.

“Most of our clients were born in Canada [and] are what I consider to be families who are rather young and … above average educated,” Lukaszuk told CTVNews.ca in a telephone interview on Oct. 18. “We have medical doctors and specialists who have rented homes for [up to] 20 years and would qualify for conventional mortgages [at major banks] no questions asked.”

Halal mortgages can act as an alternative for those who can afford to enter the housing market, but are stuck in rent due to the lack of Sharia-compliant options available, Sawwaf said.

“There are a lot of people who participate in renting when they don't have to,” Sawwaf said. “[This option] allows us to bridge the necessary financing gap so they can move from leasing to home ownership.”

DEMAND FOR ISLAMIC FINANCING EXPECTED TO INCREASE: EXPERT

Part of their importance in expanding access to Islamic financial services is the strong demand for them, Sawwaf said. While his company, Manzil, currently serves about 35 families, more than 12,000 others are on a waiting list. With the average mortgage application asking for $500,000, this amounts to the $6 billion needed in financing, he said.

“I suspect demand will grow exponentially over the coming years,” he said, pointing to data showing Canada's Muslim population is expected to reach nearly 2.7 million by 2030. countries that are used to having Islamic banking products.”

The problem his company faces is a lack of capital supply, Sawwaf said, as well as limited awareness about Islamic banking in Canada.

"Any bank in Canada ... can make a balance sheet for this," he said. "But I think they're always stuck on this as an 'unknown' product and they don't want to involve themselves in what they perceive to be a higher risk."

Saeed Teskie, who recently secured musyarakah mortgages through Manzil, said major banks were missing out on opportunities to connect with members of Canada's Muslim community by not offering Shariah-compliant mortgages.

For any big bank, if they decide to implement such an arrangement, it will be a big win for the bank because they will attract a large part of the Muslim community [who] wants something like this,” Teskie told CTVNews.ca in a telephone interview on Monday. Wednesday. "It will be available to more people."

Teskie, a business owner based in Hamilton, Ontario, said he wasn't willing to give up on securing a halal mortgage when he bought his home this year. He submitted a mortgage application to Manzil in June and received approval in August, he said. He only needed a $150,000 mortgage to pay for the remainder of the freehold townhouse he just bought, being able to pay the rest himself.

"It's very important to ensure that the financial agreement is Shariah compliant, that's part of my belief," he said. “I feel more comfortable and more satisfied [with my purchase].”

Demand for services provided by the Canadian Halal Financial Corporation is also increasing, said Omar, who works with a committee of scholars specializing in Islamic finance and economics at the Al Rashid Mosque in Edmonton. He is involved in the creation and review of mortgage contracts administered by the Canadian Halal Financial Corporation.

Since launching in December 2021, the company has approved 600 applications, and continues to receive 15 to 20 new applications every week, Lukaszuk said. While the company is currently focused on serving clients in Alberta, there are plans to expand the service nationwide, he said. The company has received many requests from residents outside the province who are interested in applying for a mortgage.

“I am disheartened by the fact that there are many Canadians who have been left out of what we consider a right – owning a home,” said Lukaszuk.

ADDITIONAL BARRIERS TO ACCESS

Immadaldeen Moussa is an Edmonton-based hairdresser who recently purchased his home through the Canadian Halal Financial Corporation. He admitted that he only found out about a halal mortgage last August, shortly before submitting an application to the company.

Moussa was approved for a musyarakah mortgage to buy a bungalow earlier this month.

"It's a great way to get a mortgage that follows our way of life," Moussa told CTVNews.ca in a phone interview on Thursday. "When we face our Lord, we don't have to tell him that we are interested."

This underscores the need for awareness around these services, Sawwaf said. Part of the solution also boils down to political will, as there are other financial hurdles that Canadian Muslims may face when buying a home, especially for the first time.

First-time homebuyers using Islamic financial services to purchase a home are not eligible for their land transfer tax deduction in certain provinces, for example. These rebates are only available to individuals and not corporate entities, which play an important role in helping Canadian Muslims buy interest-free homes.

Improving education and removing barriers like these could make it easier for members of Canada's Muslim community to enter the housing market, Sawwaf said.

"I hope people keep an open mind with regards to banking," Sawwaf said. "I'm just asking us, who are already at a disadvantage, to be on an equal footing."

Omar said he would like to see big banks start offering Islamic financial services to Canadians, as well as an increase in the supply of housing. The importance of making these services widely available goes beyond just having assets, he said, especially to members of the Muslim community who immigrated to Canada.

"It's so they feel more like Canadians [and] part of the community structure," he said. “Like [Canada] is home.”

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