* NAB has completed 3 Islamic financing deals since August
* Unit of Malaysian pilgrim fund also active in Australian deals
* Australia hasn't passed tax law changes to facilitate such deals
By Bernardo Vizcaino
SYDNEY, Feb 15 (Reuters) - Australia has begun to see a steady stream of property deals using Islamic financing as the attraction of low-risk tenants and a weak Australian dollar offset concerns about the lack of a welcoming tax environment for such transactions.
National Australia Bank Ltd NAB.AX , one of the most active banks in the sector, this month helped fund a A$160 million ($114 million) Brisbane property purchase, its third Islamic financing transaction since August.
"We saw a lot of interest from Islamic investors who wanted to invest in Australia but they had to borrow from Islamic banks offshore. This was often expensive and complex," said Imran Lum, NAB's associate director of Islamic capital markets.
"It's not only in commercial property, we're also seeing an interest in Australian agriculture and infrastructure assets," he said.
While the emergence of such deals represents a breakthrough for Gulf and Southeast Asian investors, questions remain over how much momentum will develop as Australia has yet to follow the lead of other jurisdictions like Britain and Hong Kong in passing tax law amendments to facilitate Islamic finance.
Islamic finance follows religious principles such as bans on interest and gambling but the asset-based nature of such contracts means they can incur double or triple normal tax charges because they require multiple transfers of titles of underlying assets.
Still, interest is strong.
TH Properties Sdn Bhd, a unit of Malaysia's pilgrims fund Tabung Haji, completed a A$220 million Sydney development in November helped by A$96 million in financing from Maybank Islamic Bank MBBMIS.UL .
It also has more Australian projects in the pipeline with a gross development value of A$800 million, including a A$500 million residential project in Sydney.
Prompted by investor demand, NAB has designed a funding tool using an agency-based contract known as wakala, the first such dedicated funding platform in the country.
That and other structures have now been developed that can suit commercial investment deals as well as development financing, said Dale Rayner, partner at law firm Norton Rose Fulbright.
"These transactions are getting more traction as an adaptable form of funding suited to local conditions."
His firm advised Singapore-based firm AEP Investment Management, part of Saudi conglomerate Al Rajhi Holding Group, which invested in the Brisbane deal financed by NAB through a sharia-compliant fund.
Last year, the law firm advised on a commodity-based murabaha financing for a property in Melbourne co-owned by Tabung Haji, the first time that structure has been used in Australia and is advising a foreign bank on a similar structure for a commercial property deal in Melbourne, he added.
There are also signs that more debate about tax reform could be in the works. The Australian Tax Office said in April it was considering the release of a paper on Islamic finance that had been submitted to the government in 2011, although Canberra has never responded to the paper. ($1 = 1.4081 Australian dollars)