Real Estate-Backed Financing: Its Benefits and Risks

Dr. Mons Shujaa

This question is often asked, whether by bank employees or real estate finance companies or even in informal discussions about the conditions and requirements for obtaining real estate-secured financing. We will briefly review the most important advantages of this type of financing as well as its main risks!

Real estate-backed financing ( mortgage ) as obtaining cash in exchange for a contract between the bank and the customer, under which the real estate is mortgaged for a specific period in exchange for that cash. It is a product compliant with the provisions of Islamic Sharia law, but it requires that the customer be an employee with a monthly salary from which monthly installments can be deducted from it.

Perhaps one of its most important advantages is that the customer receives cash, and the amount is often substantial given the long term—which can reach up to 15 years at many banks—allowing the customer to invest that amount, benefit from it, or use it to purchase another property with return on investment.

As for its disadvantages, perhaps the foremost is the transfer of property ownership from the customer to the bank, meaning the property is no longer the customer’s asset but becomes the bank’s, whether through a sales contract or a mortgage. Another risk is the possibility that the customer may default for any reason, in which case, God forbid, they will the client, God forbid, will permanently lose their property.

Specialist in real estate financing and performance

@MounesShujaa