The firm aims to raise 200 million pounds ($318 million) through the sukuk in the next 12 to 18 months, with 50 million pounds required to start buying the assets which will back the instrument.
Traditional sukuk, often described as "Islamic bonds", have been criticised by a number of Islamic scholars and investors for resembling conventional debt products; payments on them can be seen as akin to interest payments, which are banned under sharia principles.
Instead, Ethical Asset will invest money raised by the sukuk in income-generating student housing in Britain, projecting annual net returns of 4 to 6 percent, and give investors ownership of those assets - which it says will make the instrument closer to an equity product than debt.
Ethical "will provide investors with full ownership, which includes exposure to the risk/reward that is integral in a sharia transaction," Khan said.
At the sukuk's maturity, which is expected to be five to seven years, the real estate assets will be sold to another fund which the company will create, and investors will be able to redeem their certificates and exit the investment or reinvest in the new fund, he said.
"We want to provide a commercially viable option...which does not rely on debt and can still deliver secure and stable returns."
The nature of the equity sukuk means investors will directly face risk in the student housing market, and there is no guarantee that they will receive returns of 4 to 6 percent.
Khan said he expected the British student housing market would remain strong despite weakness in the larger British real estate market.
Annual investment returns on student accommodation in London jumped to 15.1 percent in September 2011 from 8.4 percent in 2010, according to data from real estate consultancy Knight Frank. Other cities in Britain posted a return of 10.5 percent, down from 14.6 percent in the previous period.
Knight Frank said higher tuition fees at British universities taking effect from this autumn were a concern for the market, since they could potentially affect student enrollments.
Since the start of 2011, a total of 12 sukuk have been listed on the London Stock Exchange, bringing the total to 37 with a combined value of $20 billion, according to the UK Islamic Finance Secretariat, part of the financial lobby group TheCityUK.