May I Buy a House on Installments from a Construction Company?

Answered by Shaykh Bassem Itani

Question

Is it permissible to buy a house on installments from a construction company?

Answer

It is permissible to buy a house on installments from a construction company, which is known as installment sales, and this is allowed.

There are two scenarios in this regard:

The First Scenario: The Building Already Exists

Here, an agreement is made between you and the construction company on a specified price for the house. This is what usually happens in our times through the contract conducted between both parties. Most house purchases in our era are done on installments. This facilitates financial transactions among people, as most of them do not possess such a large lump sum of money to buy a house at once. Even those who do have the money prefer to buy on installments, as they would rather invest this lump sum in a business or partnership to make their money fruitful instead of “freezing it,” as they would say.

Scholars have permitted selling with deferred payment, whether the price is paid in a lump sum or installments, based on Allah’s saying: “O believers! When you contract a loan for a fixed period of time, commit it to writing.” [Quran, 2:282] The specified term agreed upon by the contracting parties, whether it is a single payment or short-term or long-term installments, is not restricted in the Quranic text, in order to facilitate people’s affairs. It was narrated that the Prophet (Allah bless him and give him peace) “bought food from a Jew on credit and mortgaged his iron armor to him” [Bukhari] This practical hadith from the Messenger of Allah (Allah bless him and give him peace) indicates the permissibility of sale with deferred payment. An installment sale is just a sale with deferred payment; the only difference is that its price is divided into installments, each with a known due date.

It should be noted that the debt resulting from the sale is a right of the seller. If he agrees to defer the payment to one due date, he can also defer it to multiple due dates.

An important point to remember is that the price of the commodity in installments being higher than its immediate price is not prohibited, as deferring the price benefits both the buyer and the seller. As long as they agree on the price, there is no objection. However, what is prohibited is increasing the price of the commodity after the debt has settled in the buyer’s liability, which would be considered usury. At the time of the agreement, there is no harm in the price they agreed upon, as long as it is done willingly and without exploitation.

So, when the construction company deferred the price for you, it became a debt in your liability, and the agreement between you both on installments makes the scenario permissible without a doubt.

The Second Scenario: The Building Does Not Exist Yet

This is applicable when the building is not present, and the deal becomes a sale on the blueprint. An agreement is made between you and the construction company to buy a house on the blueprint with a deferred and installment-specific price, with the company delivering the house to you at the agreed time.

This scenario is called a contract of Istisna (manufacturing) in Hanafi jurisprudence, where a request is made to the manufacturer. It is a permissible contract, and scholars have justified its permissibility with several evidences: It has been authentically narrated that the Prophet (Allah bless him and give him peace) “commissioned the making of a ring,” [Bukhari] and that he commissioned the making of a pulpit, as it was reported that he sent to an Ansari woman: “Tell your carpenter slave to make pieces for me to sit on when I address the people.” [Bukhari] Muslims have dealt with Istisna in various eras and continue to do so without any disapproval. [See: Mawsili, al-Ikhtiyar, 2/38].

An Istisna contract is permissible if it specifies the type, nature, quantity, and required features of the manufactured item; the price is known; and the term is defined if it exists. The option to carry on or cancel the contract (the choice of the contractor) is established if the manufactured item deviates from the stipulated specifications. [See: Ayni, al-Binayah, 8/377].

Here, it is important to clarify two points: First, mentioning the time period in a manufacturing contract dealt with, according to the opinions of the two companions, Abu Yusuf and Muhammad – may Allah have mercy on them. Second, opting for the binding nature of the Istisna contract according to Abu Yusuf – may Allah have mercy on him. Both these matters can be relied upon and written in the contract as they address a dire need in transactions and regulate the financial dealings in the Istisna contract.

Accordingly, it is permissible for you to buy the house from the construction company with an Istisna contract on a detailed architectural plan specifying all the features to prevent any future disputes. The price can be deferred in known installments for specified terms, or an upfront payment can be made with the remainder of the price paid in installments. The company is obligated to deliver the house according to the agreed terms.

And Allah guides to what is correct.

All praise is to Allah, Lord of the worlds,

And Allah is the One who grants success in expressing His gratitude.

[Shaykh] Bassem Itani