Sharia-compliant funding for Australian commercial premises

Leasing the asset instead of lending the money

In a commercial ijarah, the financier funds the premises and receives rent for its interest, while the client gradually acquires full ownership. The financier’s return is linked to the building, and scholars require the property’s use to be lawful under Sharia.

How does MCCA document a commercial deal?

MCCA applies the same Ijarah Muntahia Bittamleek structure used for homes. Commercial facilities range from $100,000 to $50 million, run up to 30 years and fund up to 75% of value, for purchases, refinancing, debt consolidation and development.

Big-bank access through NAB

NAB offers Islamic finance to businesses and community organisations for buying or building commercial property and land, acquiring businesses and buying equipment. The minimum is $3 million, and NAB says the structure changes but the economics and pricing remain comparable.

Tax and regulatory framework

Business-purpose finance falls outside the consumer credit regime of the National Consumer Credit Protection Act 2009, so terms are negotiated commercially. GST generally applies to commercial rent and to sales of commercial premises, and the ATO follows the legal form of the documents.

Who funds commercial property in practice

For deals of $3 million or more, NAB is the only major bank publicly offering Islamic structures. Below that level, MCCA is the main dedicated provider, and Hejaz’s Flexible home finance tier reaches $25 million but is marketed for residential property.

Schools, child care centres, pharmacies, grocery stores, aged care operators and property developers are the client types NAB names. Its exclusions cover alcohol, gaming and weapons, which mirrors standard Sharia screening of tenants and business activities.

Limits buyers should expect

Islamic commercial facilities usually require more equity than residential ones: MCCA caps funding at 75% of value. Valuations of specialised buildings can be conservative, and smaller towns may fall outside appetite. MCCA’s FAQ also links commercial finance to its Income Fund.

Pricing is rarely published. NAB states that its pricing is comparable to conventional facilities, while non-bank providers price each deal individually, so obtaining written indicative terms from more than one source is the only reliable way to compare costs.

Holding commercial property in super

Business owners can buy their premises through a self-managed super fund and lease them to their own business at market rent. MCCA finances SMSF commercial property up to 75% of value, between $100,000 and $10 million, for corporate-trustee funds.

Super law requires the lease to the related business to be on arm’s-length commercial terms, with rent paid on time and documented. Trustees should check the fund’s investment strategy and liquidity, because a single large property can dominate an SMSF’s assets.

Steps toward a commercial facility

1. Prepare two to three years of financial statements and tax returns for the business.
2. Gather the property’s lease schedule, outgoings and tenant details.
3. Approach NAB for deals above $3 million or MCCA for smaller facilities.
4. Obtain indicative terms and a Sharia compliance confirmation for the asset’s use.
5. Commission an independent commercial valuation acceptable to the financier.
6. Negotiate and sign the facility with commercial lawyers and accountants.
7. Settle, register security and set up GST reporting on rent.

Costs and documents

Frequent reasons for refusal

• Tenants operating in prohibited sectors such as liquor or gaming.
• Insufficient equity for a 75% maximum funding level.
• Weak lease covenants or short remaining lease terms.
• Missing or outdated financial statements for the borrowing entity.
• Seeking NAB’s Islamic product for a deal below its $3 million minimum.

Mixing compliant and non-compliant tenants

Many commercial buildings host several tenants. Scholars generally tolerate a small share of income from non-compliant tenants if it is purified by donation, but a building dominated by a bar or betting venue usually cannot be financed under Islamic terms.

Can a business finance its own premises?

Yes. NAB explicitly finances businesses buying or building property, and also considers businesses without property security for other needs. Owner-occupiers should still separate the property-holding entity from the trading company for liability and tax reasons.

Does GST apply to the financier’s rent?

GST treatment depends on the structure and whether the financier holds a legal interest. Islamic commercial facilities should be reviewed by a tax adviser so that GST does not apply twice to the same economic transaction, an issue that conventional loans avoid.

Is refinancing an existing commercial loan possible?

MCCA lists refinancing from other institutions and debt consolidation among commercial purposes. A switch still requires a fresh valuation and full credit review, and break costs on the existing fixed-rate commercial loan can be material.

What term lengths are available?

MCCA offers commercial terms of up to 30 years with weekly, fortnightly or monthly payments and no limit on extra payments. NAB terms are negotiated case by case, reflecting the size and risk profile of each transaction.

Preparing a stronger application

Lenders value stable, long leases to compliant tenants, clear financial statements and a sensible equity contribution. Presenting a Sharia-screened tenant list upfront speeds up the compliance review and signals that the deal has been prepared for an Islamic structure.

Planning for the long term

Commercial property is often held for decades, so consider how the facility handles refinancing, partial sales or redevelopment. A structure with clear buy-out mechanics and no compounding penalties offers more flexibility when the business grows or the market changes.

Seeking professional advice

Engage a commercial lawyer, an accountant familiar with GST on property, and where relevant an SMSF specialist. Ask the financier for its Sharia certificate and scholar details, and compare total costs rather than only the headline rental rate.