Real estate: One of Shariah’s most promising sectors for investing

• A nascent, expanding market largely shaped by funds in GCC and Malaysia
• REITs increasingly an answer to Muslims seeking faith/real estate alignment
• Mega fund injection will be lifeblood to future growth of Shariah real estate

Overview

Shariah compliant property funds are becoming a powerful component of the Islamic financial world; as an explosion in real estate offerings, particularly in the GCC region and Malaysia, push this sector to the forefront of faith-aligned investing.

Having grown quietly and dynamically over the years, Shariah real estate funds had assets of just under US$18 billion at the close of Q2 2025, according to the IFN Investor Funds Database.

Even so, the sector may have just scratched the surface of its growth potential, given that the worldwide AuM for conventional properties is estimated at US$3.95 trillion by the European Association for Investors in Non-Listed Real Estate Vehicles.

A key component of this sector is the rise of REITs, which are increasingly popular with Muslim investors seeking highly liquid investable real estate in bite-sized form. These investment trusts allow investors to pool resources into quality properties that adhere to Shariah principles.

The SP Funds S&P Global REIT Sharia ETF, which tracks the S&P Global All Equity REIT Shariah Capped Index, has approximately US$165 million in AuM currently versus just US$19 million three years ago.

The biggest Islamic real estate centers are predominantly located in the Gulf and Southeast Asia. Riyadh, Dubai, Kuala Lumpur and Manama are major hubs for Shariah compliant real estate activity.

Other significant centers include Mecca, Medina and Jeddah in Saudi Arabia; Doha in Qatar; and Istanbul in Turkiye. Mecca and Medina are particularly preferred destinations for high-net-worth Muslim investors, with some prepared to spend billions of dollars on properties in these holy cities.

While the Middle East remains the epicenter, managing more than 60% of the market's assets, new data from the second quarter of 2025 in the IFN Investor Funds Database reveals compelling stories of expansion elsewhere.

Europe, for example, saw an impressive increase of nearly 19% in its real estate assets in the same period, signaling a growing appetite for Shariah compliant investments in the continent. Africa and the Americas as well as Africa also posted strong gains, with their respective AuM increasing between 5% and 6%.

Investment opportunity

The Shariah compliant real estate sector presents a promising investment opportunity, fueled by increasing Muslim populations and their rising affluence. The sector is attracting interest from both established market participants and new entrants.

It has become a crucial component of wealth diversification and is well-suited to Shariah compliance structures, especially through mechanisms like Ijarah. This is because real estate transactions involve a tangible, identifiable and valuable asset, which aligns with Shariah principles that prohibit excessive uncertainty and speculation. The biggest components of the Shariah real estate market are residential and commercial properties.

Asset spread

Data tracked by the IFN Investor Funds Database shows the global Shariah compliant real estate market is valued at US$17.68 billion , encompassing 64 funds worldwide. The Middle East dominates this market, with an AuM of US$10.86 billion and 40 funds, representing over 60% of the total assets.

The Asia Pacific region is the second largest, with US$6.06 billion in AuM and 11 funds. Europe follows with US$510.82 million in AuM from 10 funds. The Americas and Africa have smaller shares, with US$211.55 million and US$37.15 million in AuM, respectively.

Chart 1: Islamic real estate by regional AuM, fund count

Country-wise, Saudi Arabia leads with US$8.2 billion in assets across 27 funds. Malaysia is second with US$5.87 billion and seven funds, followed by the UAE with US$1.14 billion and four funds.

Other notable centers include Kuwait (US$508.1 million, three funds) and Bahrain (US$525.14 million, one fund) while Turkiye has a total of US$489.36 million in eight funds. This distribution highlights the concentration of Shariah compliant real estate funds in key Islamic financial hubs.

Chart 2: Islamic real estate by country AuM, fund count

Fund performance

The IFN Investor Fund Database shows that Europe experienced the most significant growth in Islamic real estate assets in Q2 2025, with an 18.8% growth that boosted AuM to US$510.87 million.

Table 1: Islamic real estate funds quarterly AuM change, by region

The Americas and Africa also saw strong growth, with upward changes of 5.96% and 5.36%, respectively. The Middle East and Asia Pacific regions, while holding the largest AuM, experienced more moderate quarterly growth, at 5.1% and 4.29% respectively. This demonstrates a broad-based positive performance across all regions since the start of the year.

Table 2: Top performing Islamic real estate funds as of Q2 2025

The top-performing fund for the quarter was Al-'Aqar Healthcare REIT, with a three-month return of 5.57%. This was closely followed by SNB Capital Global REITs Fund, which had a return of 5.54%.

The top five performing funds also included Manzil Mortgage Investment Fund (1.49%), HSBC FTSE EPRA NAREIT Developed Islamic UCITS ETF (1.47%), and KFH Capital REIT Fund (1.16%).

Table 3: Largest Islamic real estate funds by AuM

In terms of AuM size, the largest fund is KLCC REIT, with AuM at US$4.39 billion. Other significant funds include Amanah Hartanah Bumiputera (US$1.181 billion) and Emirates REIT (US$857.9 million).

This highlights the dominance of a few large funds in the market, particularly in Malaysia and the GCC.

Outlook

The future of Shariah compliant real estate is promising, with major Islamic hubs poised to inject billions of dollars into new properties.

This is particularly evident in Saudi Arabia, which is undertaking massive development projects, with a transaction value of US$34 billion in the first half of 2024, a 38% surge. Projects like Jeddah Economic City and the Thakher Makkah development are examples of this growth.

Demand is also high among global high-net-worth Muslim individuals for properties. The Shariah realty market, particularly in the GCC, has shown strong growth and genuine demand from investors.