TOKENISATION OF REAL ESTATE

AFFIRMATIVE FRACTIONS

With its massive potential to democratise real estate investment, tokenisation is one of the most exciting new frontiers in the industry

BY LIAM ARAN BARNES

It does alter how real estate will be owned, managed, and transacted around the globe. The benefits of the technology in simplifying complex, manual processes and driving scale at lower costs ARE a given

The peaks of Aspen may be a far cry from Bangkok’s high-rise downtown. But for Stephane De Baets, the investment climate is just as appealing.

Since relocating to Colorado from the Thai capital, where he spent the best part of 25 years in finance, the Belgian entrepreneur and CEO of Elevated Returns has established himself as a pioneer of blockchainbased real estate investment.

De Baets initially founded the digital asset management firm while still in Bangkok to acquire the iconic St. Regis Aspen Resort. It was a bold move but not out of place for a seasoned investor with a USD500 million-plus portfolio spanning real estate and hospitality assets, including Chef’s Club, a global restaurant group featuring some of the world’s best chefs.

But the real game-changer came in 2018 when De Baets launched the digital security Aspen Coin, distributing tokens representing USD18 million in fractionalised ownership in the five-star resort. It was the world’s first real estate security token offering. “The property remains private. But through tokenisation, you create an instrument so that anyone can buy without going through due diligence or document review,” he says. “Now we’re going one step further and allowing them to receive cashback on their stay, which is very significant because it means anyone who owns a certain number of tokens is treated as an owner.

PLANS HAVE BEEN HATCHED TO TOKENISE MULTI-MILLION-DOLLAR PROPERTIES IN PRIZED LOCATIONS LIKE MANHATTAN IN NEW YORK

THE PANDEMIC HAS SPED UP THE DIGITALISATION OF REAL ESTATE PRACTICES AND LED TO A PROLIFERATION OF PROPTECH COMPANIES

“I think all securities will be digital in the future, I believe we will have new forms of investments, and people will begin selling the rights to utilities,” De Baets adds. “That’s where the innovation will be powerful.”

Global accountancy firm Moore Global recently stated that even if just 0.5% of the USD280-trillion global property market was tokenised in the next five years, it would become a USD1.4 trillion market. But tokenisation, which is still in its nascent stage, remains a relatively unknown quantity for most individual real estate investors.

Simply put, it is the breaking down of a usually large and single unit of real estate into multiple and smaller units, and in this case, represented by tokens. It works in the same way as the digitisation of physical artwork. The token represents the ownership information of the asset, recorded on a blockchain.

Details such as ownership, construction plans, the location, and investor rights are mapped in digital form and recorded in a smart contract—essentially programmed actions of real-world contracts and operational process actions on the blockchain. The property’s value is then distributed among a fixed number of tokens and issued to investors. After the initial issue, these can be listed on a digital exchange for secondary market trading and resold by investors. “In a nutshell, tokenisation solves several problems at a go,” explains Rani Kaur, head of strategy and business management for global South Asia and Middle East businesses at Bank of Singapore. “It reduces entry barriers and democratises access to new markets for smaller investors.”

Fractional ownership of real estate isn’t exactly new. In the early 1960s, real estate investment trusts (REITs) were established to attract investors and change the illiquid status of real estate. Tokenised real estate is different from REITs in that they are open to anyone and usually have no minimum investment amount. Real estate tokens also provide an option for a more specific investment linked to a particular property, whereas REITs allow investing in a pool of various real estate assets.

“All these features increase flexibility in real estate investment,” Kaur adds. “As an investor, it enables anyone to own a part of a trophy property and enjoy the economic benefit of such ownership, as well as the status of being recognised as an ‘owner’.

“The benefit for the developer is you target your customer with a cheaper and more efficient way of unlocking value for fractions of traditionally ‘out-of-reach’ real estate investments.”

THAILAND IS AN EARLY ADOPTER IN THE RUSH TOWARDS REAL ESTATE TOKENISATION IN SOUTHEAST ASIA

But since Elevated Returns’ landmark offering, there have been just as many tokenisation failures. Perhaps the most notable was the high-profile joint venture between tech startup Fluidity and broker-dealer Propellr, which planned to tokenise a USD30-million Manhattan condo in 2018. The project was quietly shelved a year later, with both companies stating that the market wasn’t ready.

Indeed, potential token bubbles—like those recently witnessed with non-fungible tokens or NFTs—can be high risk and, at best speculative. A tremendous amount of work needs to be done to iron out the legal, regulatory and taxation fronts, with stamp duty, investor protections and the enforcement of smart contracts, for instance, yet to be formalised. Security issues like scams, fraud and theft have not yet been eradicated from the blockchain. Therefore, investors require a strong knowledge of how things work on the distributed ledger.

“The biggest concern to be addressed for real estate tokens is the lack of clear legislation,” according to Ryan Thoo, director of consumer marketing at PropertyGuru Group. “Without that, complications will arise, and disputes will be difficult to solve. We need to work closely with key stakeholders of the real estate ecosystem, including policymakers, central banks, and housing associations, to ensure regulatory composability, sustainability, and safe consumer adoption.” SPRING IS HERE

In 2021, the De Baits-led XSpring Digital Co raised THB2.4-billion selling 240 million Siri Hub Investment Digital Tokens (SIRIHUB), the country’s first real estate-backed token. The offering—Thailand’s first initial coin offering (ICO) of real estate-backed tokens—allows investors to buy into developer Sansiri PLC’s Siri Campus from as little as THB10. Quarterly revenue sharing of up to 8% per annum over four years is predicted for its 6,000-plus investors to date.

XSpring Digital is also moving forward with plans to expand its digital assets businesses in Thailand. It has already applied for the licences for a digital asset broker and dealer to meet the growing demand from many businesses interested in raising funds via tokenisation. It also hopes to bring an expanded platform to the United States.

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Ecosystems in Asia are already gathering momentum, with increasing collaborations between real estate developers, digital exchanges, investment management companies and proptech and fintech firms. In 2021, Singapore Exchangebacked digital securities platform ADDX and the Middle East investment management firm Investcorp tokenised a private real estate fund focused on the Sun Belt in the US (the country’s southern portion), with half of the USD150-million fundraised via tokens. Hong Kong-based tech firm Liquefy, meanwhile, recently announced a USD1-billion tokenisation partnership with a consortium of Gulf families, including a USD600-million hotel in London.

As with many digital landscapes over the last couple of years, the pandemic was inevitably a catalyst for rising interest amongst investors. “Consumers have become more comfortable transacting online,” adds Thoo. “They will soon adopt the sale and purchase of fractionalised properties in the form of tokens, as we have for cryptocurrencies.” The pandemic also uncovered the structural challenges of operating and investing in real estate. It sped up the digitalisation of real estate practices and transformation of traditional property players and led to a proliferation of proptech companies seeking to participate in Asia’s real estate ecosystem. Still, subsequent reservations remain in the industry that tokenisation bypasses property managers, lawyers, banks, and other intermediaries and threatens established protocols or institutions like lenders.

“It does alter how real estate will be owned, managed and transacted around the globe,” says Kaur. “My view is that it disrupts existing value chains and the traditional way of doing things, for sure.

“The benefits of the technology in simplifying complex, manual processes and driving scale at lower costs are a given.”

Either way, it’s important to remember that tokenised real estate is very much in its infancy. The first tokenised project only happened in 2018, and a market as big as real estate isn’t going to be disrupted overnight.

Still, Kaur and others believe the transformation is inevitable. Many real estate companies are paying close attention and laying the groundwork for the future, real estate investment and ownership are moving online, and the blockchain seems the best way to do it.

What is up for debate is the timeframe of when tokenised assets will become widespread. It could be a while in a sector like commercial real estate, where change is traditionally slow. LONG LIVE BLOCK

Governments worldwide are quickly recognising the need to store title records on blockchain ledgers. In 2020, the UK-based Digital Street research project developed a prototype that digitally transfers property to the Corda blockchain platform—automatically updating the UK Land Register. China’s President Xi Jinping also claimed in late 2019 that blockchain would serve “an important role in the next round of technological innovation and industrial transformation”—an about-turn from the country’s virtual currencies ban in 2017.

In neighbouring Japan, meanwhile, tokenisation specialist Securitize–backed by Sony Financial Ventures, Nomura and MUFG –recently teamed up with advertising firm Lifull and real estate agency Enjoyworks to launch the first security token offerings for retail investors: a retirement housing project in Hayama. Developer Lead Real Estate used blockchain to bankroll the construction of condominiums and hotels in anticipation of the Tokyo Summer Olympics.

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DREAM HOMES

A true catalyst of change during the pandemic and beyond, SMDC is bringing Filipinos closer to fulfilling their dreams of homeownership

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After enduring the crippling impact of the global health crisis, the property sector in the Philippines is rallying towards recovery.

Optimism has returned to the country along with eased quarantine restrictions, ramped-up vaccination rates, and improved business and consumer confidence since the first quarter of 2022. Personal remittances from Overseas Filipino Workers (OFWs) hit an all-time high (USD34 billion) in 2021 while the young, educated, Englishspeaking workforce continues to drive the growth of the outsourcing industry. Finally, demand for residential real estate is as omnipresent as ever with the nationwide housing backlog now touching six million units.

SM Development Corporation (SMDC), the largest and fastest-growing real estate developer in the Philippines, remains steadfast in its commitment to respond to the everevolving demands of Filipino homebuyers. For SMDC, building strong communities is vital in creating a stronger country.

Championing perfectly integrated commercial and residential environments, SMDC gives Filipino property seekers and investors access to a sustainable and attainable cosmopolitan lifestyle. Through masterfully planned and award-winning complete developments, SMDC has been providing Filipinos with their dream homes in Metro Manila and other key cities in the Philippines.

“Driven by the vision of our Chairman Henry Sy Jr. of building a nation of homeowners, our purpose is to democratise homeownership in the Philippines,” says SMDC President Jose Mari Banzon. “This has fueled SMDC’s resilience despite the storms brought about by the pandemic.”

SMDC has adapted effectively to the constant changes brought about by the pandemic: making sure to execute various programs and activities that cater to the Filipino community during trying times. Through SMDC’s The Good Guys Weekend Market, resident-entrepreneurs were provided an avenue to sell their products and take advantage of additional income streams amid the pandemic. SMDC also worked with local government units and government agencies on the vaccination campaign as well as medical and dental missions under the company’s The Good Guys Health and Wellness Caravan. At a time when hundreds of Filipinos lost their livelihoods, they found new employment opportunities through SMDC’s The Good Guys Job Caravan.

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“More than just building condominiums, we build communities of people,” says Banzon. “We are conduits of nation-building, and we create a positive impact on the lives of our residents and the broader community that we belong to. We also believe in promoting sustainability— in efficiently sharing spaces and resources, so that they become inclusive and affordable. We believe that masterfully designed, sustainable communities should not be expensive, so that more people can live a low-carbon footprint lifestyle.”

SMDC has recently begun launching developments appropriate for the changing needs of Filipinos and creating more connected, sustainable, safer communities. As economic fundamentals change for the better, SMDC is optimistic that the property sector will stay on track in regaining its strength and will continue to drive the growth of the economy. These positives are aligned with SMDC’s goal to make it possible for every Filipino to belong to world-class and master-planned properties. For these achievements, SMDC clinched a back-to-back win as Best Developer (Philippines) at the 9th PropertyGuru Philippines Property Awards 2021. On the awards reception night held on March 23, SMDC collected a total of 11 awards including the Best Mid-Rise Condo Development (Philippines) for Gold Residences, Best Upper Affordable Condo Development (Metro Manila) for Vine Residences, and Best High End Condo Development (Southern Luzon) for Green 2 Residences.

“Having been recognized as ‘Best Developer’ in 2021 and having been given the opportunity to represent the country and the industry on the regional stage are truly proud moments for our company,” says Banzon. “This recognition challenges us to live up to the trust and confidence the people have given us. It fuels our passion of building communities that Filipino families can call home, and it drives us to do more for the country.”

Visit https://smdc.com/ to check out award-winning properties from SMDC today

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