Question # 212: I have purchased properties (some of it is land only and some is constructed houses) from a developer on installments, the property is also not ready and will handed over after completion of installments and the project. These are long term investments. The title deeds will be given on the hand over. Wanted to know if zakat is applicable on the installments I have already paid. If yes, can I deduct the installments, from total investment, payable within 12 months? Also that shall I take market value for zakat calculation or the original investment amount.
Bismi-llahi r-raḥmani r-raḥīm,
Assalamu ‘laikum warahmatullahi wabarakatuh,
All praise and thanks are due to Allah (سبحانه و تعالى), and peace and blessings be upon His Messenger (صلى الله عليه و سلم).
First of all, we implore Allah (سبحانه و تعالى) to help us serve His cause and render our work for His sake.
Shorter Answer: Usually, Zakat on property depends on the intention of purchase:
- Personal use: no zakat is payable;
- Selling/trading: zakat is payable at the end of one full lunar year;
- Investment to be rented out: zakat is payable only on the rent revenue that passes nisab (minimum threshold) at the end of one full lunar year.
However, in case of property under construction, nothing is zakatable for now, till the project is fully constructed and the property is ready for use, after which if the units are for sale and they are active in the market, then zakat will be payable every year based on their fair market value.
Long Answer: When a person buys [property], one of three scenarios must apply:
- That which is intended for living on. This is not subject to zakah, because it is not for trade or business.
- He buys the [property] with the aim of selling it and seeking to make a profit from it. This comes under the heading of trade goods if one full (hijri) year passes. Then he should see how much it is worth when the year has passed, and pay one quarter of one tenth of its value at the time when the year has passed.
- When he wants the [property] that he buys as an investment, so that he can develop it by building shops or apartment buildings to rent them out. No zakah is due on the [property] itself, rather zakah is due on its revenue. If he receives in rent money that passes the nisab (minimum threshold), and one year has passed since the rental contract was drawn up, then he must pay zakah on it. (Al-Muntaqa min Fataawa al-Fawzaan)
[If the property is bought with the intention of selling it and] if the construction has not been completed, then there is a difference of opinion with regard to paying zakah on it during the construction phase. Some of the scholars say that zakah must be paid on it, so zakah should be paid on its capital or on its value if it has a value greater than the capital, taking into account the value of the land and construction materials… And some of the scholars said that no zakah is to be paid on real estate until construction is complete. [The second opinion is stronger]
And some scholars said that if it is offered for sale during construction, zakah must be paid on it, but if it is not offered for sale, no zakah is due on it until construction is complete. (al-Zakaah fi’l-‘Aqaar by Dr. Saalih ibn ‘Abd-Allah al-Laahim)
(The above reply is based on various answers by Islamqa.info)
Lastly, as for the installments paid, according to Dr. Main Khalid Al-Qudah, Member of the Fatwa Committee of Assembly of Muslim Jurists in America: “Nothing is Zakatable for now till the project is fully constructed and the property is ready. At that point, if units are for sale and they are active in the market, then they are Zakatable every year based on their fair market value.” Also, according to Islamqa.info: “As for the money [given] as down payment/[installments] to buy the [property], one does not have to pay zakah on it because it is no longer in your possession since [it was given] to the seller/[developer].”
Allahu A’lam (Allah (سبحانه و تعالى) knows best) and all Perfections belong to Allah, and all mistakes belong to me alone. May Allah (سبحانه و تعالى) forgive me, Ameen.