How will tokenisation revolutionise real estate investment?

Dividing up assets into easily tradeable digital securities has the potential to revolutionise real estate investment, writes Steven Lang, director, commercial research at Savills. Four hundred years ago, the Dutch East India Company became the first publicly traded company. By offering bonds and shares to the general public to raise capital, it created a new tradeable marketplace. So although the concept of fractional ownership is not new, a fresh approach to real estate investment is: tokenisation. As the name suggests, this is the process of “tokenising” real estate: breaking down ownership of tangible, real-world assets into tokens, or digital securities. These tokens run on a blockchain – the technology that underpins cryptocurrencies. Despite the well-documented fall in value of cryptocurrencies, blockchain is fundamentally sound and very useful: a decentralised, irrefutable and secure platform on which trade of real assets is possible. Blockchain technology has many potential applications for real estate – enabling tokenisation is just one. So it is no surprise that real estate companies are embracing the benefits for owners and investors across all sectors. So how does tokenisation work? Let’s take a property currently worth US$20m as an example. The quantity of tokens issued could be determined by the initial value of the property – in this case creating a supply of 20 million tokens worth $1 each which are then listed for sale on an online platform. In theory, an individual could buy anywhere between one and all of the tokens and sell any number of them at any time. A share of the income is also derived, determined by the number of tokens owned. Julian Kwan, co-founder of InvestaCrowd and the RealFuel digital token, says property owners can issue blockchain-enabled tokens or “digital securities” but may only wish to part-sell their ownership. Tradeability and liquidity are both enhanced, with cost and time savings. However, in these early stages, for the marketplace to succeed, there needs to be an underwriter, a regulated group to assist in the creation of compliant tokens, an exchange (marketplace) in which these tokens can be traded and, of course, willing buyers and sellers to create liquidity. Tokenisation of real estate creates fragmented ownership, but within a private market. With more than $300bn of cross-border real estate investment in 2018, the enhanced capability of investors to provide private equity is an attractive proposition for owners of all types. Not only are relatively “private” markets now accessible by smaller investors, but the fees and time taken to execute deals can also be reduced. Yes, you can buy indirect property funds or listed real estate equities, but tokenisation enables a specific focus of investment that has never before been achievable without buying the whole building. Asian markets are leading the way for tokenisation. One of the benefits of the blockchain is that title searches and transfers can be verified instantly – particularly important in Asia’s developing markets, where security of title can prove difficult for investors. Incomplete, out-of-date land registry information could become a thing of the past. Savills Vietnam deputy managing director Troy Griffiths says the country has the potential to quickly follow this global trend, as its population is young and eager to embrace new technology, while policymakers are forward-thinking. So what does the future hold? The adoption of blockchain technology and tokenisation will increase but it’s difficult to predict the speed at which they will become more mainstream. However, the ecosystem around tokenisation is growing, and credible companies are emerging. In Europe, some, such as TEND technologies, are providing an alternative to accessing, owning, experiencing and investing in valuable assets. The prospects for growth are bound by the regulators but it’s encouraging to see new methods of ownership meeting regulatory approval – such as the new IPSX commercial real estate exchange in London. This reimagination of real estate investment presents opportunities to change the way real estate is owned.