London residential funds that are sharia compliant are likely to become more prolific, according to a local asset manager whose firm has just released the second of its property funds under this structure.
London Central Portfolio’s (LCP) £100 million (€119.6) fund aims to buy one to two bedroom rental properties in central London, in the most fashionable neighbourhoods immediately surrounding Hyde Park, such as Knightsbridge and Marylebone.
Properties in these areas have increased an average of 9% in value since the end of the Second World War, and are now worth an average of £1.5 million.
LCP, which specialises in prime real estate in the UK capital, says it is not specifically targeting Islamic investors with its latest fund, launched last week, but is trying to make their products available to wealthy clients from all backgrounds.
However, it has seen strong demand for the sharia compliant funds. The first, launched in September 2011, was fully invested by October 2012, and LCP is already seeing significant commitment to its second fund, just one week after its launch.
To comply with sharia law, funds can't invest in certain business activities, such as the production and sale of foodstuffs like pork and alcohol, which are prohibited to Muslims, or adult oriented business like casinos, pornography or strip clubs.
According to Hugh Best, head of investment at LCP, Sharia compliant funds for residential property are easier to set up than other types of funds, because the clients do not need to know who the tenants are, like they would with other property types.
"It's not like commercial property, and things like hotels where there would be a bar," he said.
He believes both the prime residential funds are the only ones of their type in London that are sharia compliant.
"Islamic finance and the concept of ethical investment [is] becoming increasingly important, so we would expect to see the market grow considerably in the coming years. LCP has blazed a trail and we will keep operating in the space," he says.
LCP found that 25% of investors in its first fund were Muslim, but added it had never previously analysed the background of its investors.