Zakat on Land and Determining Market Value

Answered by Shaykh Faraz A. Khan

Question: Q1 If land is purchased for leasing apartments, would such a land fall under the definition of merchandise and therefore be zakatable?

Q2: Also, often, potential buyers of the land will not buy the land outright as they may not have the financial capacity. So they will opt to pay in installments. In such an event, the ownership is only transferred once the last installment is paid. In such a case, would any zakat need to be paid at all on the year-to-year profit/appreciation since one doesn’t technically own the land?

Q3: What if the buyer of the land does not have sufficient cash to pay the zakah every year? Can he delay paying the zakat on the profit aspect until the ultimate sale of the land?

Q4: Also, even if the buyer has sufficient cash to pay the zakah every year, is there still an option to delay paying this until the ultimate sale?

Q5: Is there anything in the Shari’ah to indicate how the market value is arrived at? Such as the price that you as the buyer and current owner can sell it at, versus the price that the original owners are advertising at in their brochures?

Answer: Assalamu alaikum wa rahmatullah,

I pray this finds you in the best of health and states.

(1) Zakat is due for land only if at the time of purchase, the buyer has a clear and firm intention of reselling the land itself.

Zakat is not due if the land were purchased for any other purpose, nor if the intention of resale at the time of purchase was not definite but rather a possible option. This holds even if the intention at the time of purchase is for commercial purposes such as leasing, and even if after purchase one firmly decides to resell the land.

Therefore in the scenario you describe, zakat would not be owed.

Also if one does purchase land with the explicit intention of reselling the land, then one simply pays 2.5% of the ‘current market value’ of the land at the time of his or her zakat due date, not on the profit/appreciation alone.

(2) If in this scenario the land were purchased with the explicit intention of reselling the land, then zakat would be due every year upon whatever it is that the buyer owns at the time of his zakat due date, depending on the nature of the contract.

So if at the time of the contract complete ownership of the land is transferred to the buyer, who then pays its price over time in installments, then zakat is due every year on the ‘current market value’ of the land itself. Again, this is assuming the land were purchased with the firm intention of resale alone.

If however the ownership of the land remains with the seller until the full amount is paid, then zakat would be owed every year on the installment money itself given to the seller.

In such a situation though, it might be advisable for the buyer to not make an explicit intention of resale but rather have an intention of ‘keeping his options open’ — even if resale is one of those options — as that makes the situation a bit easier.

(3) In such a situation, one may delay payment of zakat. Again however, zakat is due on the ‘current market value’ of the land at the time of one’s zakat due date, not on the profit/appreciation alone.

(4) Undue delay without a good reason is disliked, so this should not be done.

(5) Neither of these is the basis of determining ‘current market value.’ Rather, this is done by consulting experts in the market who are capable of appreciating the value of land at that time.

[Ibn Abidin, Radd al-Muhtar; Kasani, Bada’i Sana’i; Zayla`i, Tabyin al-Haqa’iq]

And Allah knows best.
wassalam
Faraz A. Khan

Checked & Approved by Faraz Rabbani