ASSESSMENT FRAMEWORK OF ZAKAT ON REAL ESTATE PROPERTY DEVELOPERS IN MALAYSIA

Abstract

This study aims to develop a more appropriate and equitable zakat assessment framework for real estate property developers in Malaysia by considering the differing operational realities between formally registered companies (Sdn. Bhd. or Berhad) and small-scale property developers operating individually. The property sector plays a significant role in Malaysia’s economic growth. However, existing zakat guidelines are predominantly based on manufacturing and production models, which emphasize inventory in the form of raw materials, work-in-progress, and finished goods. This approach does not reflect the nature of the property development business, where the core assets consist of land, completed houses, and buildings. This study adopts a qualitative methodology involving semi-structured interviews with seven informants comprising academics, industry experts, zakat officers, and both formal and informal property developers. Informants were selected through purposive sampling to ensure their expertise and experience in the subject of zakat for property businesses. Data were analyzed using thematic analysis to identify key similarities, differences, and emerging themes in the assessment of zakat on real estate ventures. Findings show a unanimous consensus among informants on the obligation of zakat on property development activities, as such ventures are categorized as ‘urud tijarah (trading assets). However, it was strongly emphasized that current zakat accounting frameworks fail to address the operational distinctions of property developers. For formal developers, zakat assessment should include current assets such as completed property inventories (buildings, houses, land lots), accounts receivable (net of doubtful debts), short-term investments, fixed deposits, and company cash holdings. Allowable current liabilities include payables, short-term borrowings, lease liabilities, outstanding taxes, and non-Shariah compliant income that must be excluded from zakat calculations. In contrast, small-scale developers are only liable for zakat upon the sale of the property and the realization of profit. Assessable assets include only the proceeds from property sales, while deductible liabilities include costs such as land development, labor, legal fees, licensing, and annual land taxes. This exception aligns with the Maliki school of thought, which considers such developers as tajir al-mutarabbis thereby granting them zakat relief by requiring payment only after the property is sold and zakat conditions are fulfilled.