Expensive, But Fair? Why Many Are Choosing Sharia-Compliant Mortgages
Maslow’s hierarchy of needs describes the various requirements for human survival, with physiological needs such as food, drink, clothing, and shelter forming the most vital foundation. Owning a home fulfils this basic need for shelter, even if it is not necessarily a house. Beyond physical protection from the elements, a home provides a psychological sanctuary from the chaos of the outside world. A prevailing social stigma also frames homeownership as a crucial investment for oneself or one’s partner to enjoy in old age, driving many people to work hard to purchase their dream home.
Today, there are several ways to acquire a home, including cash purchases, building from scratch, buying subsidised housing, or utilising a mortgage. Among these, the Home Ownership Credit (KPR) is the most common method, as the high cost of a house is unaffordable for many without a large income. The KPR programme assists low-income individuals by allowing them to pay a down payment and then repay the loan in instalments with interest until it is settled. The interest rates applied can be fixed, remaining unchanged for the entire loan period, or floating, fluctuating with market rates.
A Sharia-compliant KPR offers an alternative for those seeking transactions aligned with Islamic principles, operating without interest. Instead, it typically uses a murabahah contract, a sale agreement where the seller transparently discloses the cost and the profit margin. In this scheme, the Islamic financial institution first purchases the property from the developer, taking full ownership, before selling it to the customer at a price that includes the agreed-upon profit margin. This ensures the instalment amount is fixed and will not change mid-way, and the customer has complete clarity on the cost structure due to the institution’s transparency.
In reality, Sharia-compliant mortgages are often considered more expensive than their conventional counterparts, creating a dilemma for potential customers. However, proponents argue that the higher cost reflects the product’s underlying philosophy of fairness and risk calculation. Customers know exactly what they are paying from the start, with no fluctuating rates, providing a guarantee of justice in the transaction. The premium is thus seen as an accumulation of calculated risk, designed to benefit both the financial institution and the customer.