'We don't focus on the segment [of the market] looking for Islamic finance. We look at the market in general and appeal to a large spectrum of people,' says Sajay Sharma, chief operating officer (COO) at Dubai-based Tamweel. Both the company and its local rival Amlak Finance are sharia-compliant mortgage specialists and together account for more than 80 per cent of mortgages written in the UAE and two-thirds currently being written.

In an ijara agreement, the mortgage institution buys the property and the customer makes monthly payments towards the original sale price and also pays rent for occupying the property. Ownership is transferred when the balance is paid off. Other Islamic mortgage alternatives include murabaha, a form of deferred sale in which the bank purchases the property and resells it at an agreed profit margin to the customer, who takes ownership and makes an initial down payment followed by installments. There is also musharaka, an equity partnership in which the bank buys the property and leases it to the customer who contributes an initial share. The share increases with each installment until the customer owns 100 per cent. And then there is istisna'a, or progressive financing, for customers who wish to build their own homes and the purchase price is paid in accordance with the job.

Flexible productHowever, ijara is by far the most popular in the Dubai market, appealing to both mortgage providers and customers. 'It allows a floating rate. Most products cover 25 years or more. It's difficult for any provider to offer a fixed rate for that length of time,' says Sharma. Ijara is also a good fit for customers, many of whom are not bothered whether a product is sharia-compliant or not but are used to variable rate mortgages and do not have the funds for a big down-payment.

But its key appeal to potential buyers and institutions in the UAE, where long-expected freehold legislation has yet to be enacted, is that the bank retains ownership of the property until the balance of the purchase price is paid, hedging the freehold issue in the short term. 'Ijara finesses the issue of ownership. If you expect to take the freehold title, you're not bothered if today you don't have ownership rights. If legislation is not passed by the end of the lease, you just extend it,' says Abdulkader Thomas of Shape Financial Corporation, an Islamic finance consultancy and a subsidiary of Kuwait-based Alshaya Group International. UAE nationals make up only 15-20 per cent of mortgage customers, with the rest expatriates from Iran, Pakistan, India and the UK. About 75-80 per cent of expatriates are UAE residents who are snapping up homes in brand-new residential developments in Dubai, in anticipation of new property laws. Whether the appetite for ijara-type mortgages continues once new legislation is in place remains to be seen. 'It will be interesting to see how the introduction of ownership legislation impacts the conventional and Islamic markets,' says Raman Lakshmanan, a former chief retail and risk officer at Amlak. 'Customers who are used to ownership may opt to take the conventional route.' Ownership of the asset makes ijara an even more attractive option to mortgage providers, who traditionally have a low appetite for risk. It also allows the institution to securitise and raise finance by tapping into the swelling pool of sharia-compliant finance in the region. Murabaha is less appealing because securitisation is impossible with no asset to back. With musharaka, ownership of the property is ambiguous. Securitisation is a key issue for the