Real estate tokenization

In 2018, the first property-backed token was launched! It is called BIG Tokens.

The BIG Tokens are backed by 7 pieces of prime beachfront and riverfront sites. Token proceeds will be loaned to the land owners of these 7 sites for development. The sponsors will pay an annual interest and loan repayment back to the ecosystem driving up the value of our BIG Tokens, thus benefiting token contributors.

BIG Token holders can utilise their tokens at the full range of hotels, co-working spaces and health medical facilities to be developed. BIG Tokens can also be used at partner developments, airlines, golf courses, and hospitals to ensure utility is as similar to traditional currencies as possible.

Today, Property Tokenization can come in 2 forms:

i. to convert one’s property into digital asset in the of non-fungible token (NFT) and sell the property NFT. One FT represents one property; OR

ii. breaking the property into many small fragments, what we generally called “fractionalization’. Each fraction represents a partial interest or ownership of the property.

In the past, a property investor could participate in real estate investment by:

1. directly buying and owning a property, or

2.  investing in real estate investment trust
   (REITs), or

3. investing in the stock of real estate
   company or property development
   companies.

In recent years, due to the rise of property technology platforms and Mobile Apps, real estate investment can be done in small bite sizes. This is referred to as property fractional ownership. Examples of fractional property platforms are Domacom and BrickX in Australia; Lofty, Tessera, Arrived Homes, Dibbs in the United States; and TAB, August in Europe / United Kingdom.

The fractional real estate investment is done through the respective mobile App, where an investor could buy a small fraction of a selected property for as low as $50 and hence own interest in the real estate and be entitled to receive return on investment. The return can come in the form of dividend or rental sharing on the real estate. The return is usually transferred to the investor’s e-wallet.

Property tokenization essentially adopts the same principle of fractionalizing property, using blockchain as an underlying technology. Every fraction of the property is in crypto token form. The crypto token minted on the blockchain will be a representation of the ownership, rights and interest to a fraction of the property. You can regard that as a digital certificate of your ownership of property.

How to tokenize your property?

Technically, anyone can tokenize their property for the purpose of selling the entire property, or part of the property. One can also tokenize the share capital of the company (like a LLC or LLP) that holds ownership to the property.

In October 2022, a 3-bedroom house in Columbia, South Carolina was sold for USD 175,000 as an NFT (non-fungible token). The buyer Adam Spipakoff received an NFT to his Ethereum address to prove ownership of the property. A property listing and transaction history on Roofstock onChain is transparent and looks like this

ownership of the Token is proof of ownership of the home.

Another methodology for a property owner to dispose his/her property via tokenization is by fractionalizing’ it using blockchain. If the property is registered to a LLC (in United State) or LLP (limited liability partnership), the owner could divide the ‘share’ of the LLC or LLP into multiple parts, example 100 parts. Hence there will be 100 tokens being minted and each token will represent 1% share of the property.

At Roofstock onChain, a NFT marketplace for physical homes, home owner may transfer their home to a LLC (limited liability corporation), and mint a Home onChain Token for the LLC. When a buyer buys the Token, he owns the LLC, which directly owns the Home. Proof of Technologically, one can list their property on fractional ownership platform or STO platform to mint the tokens and list the token on such platform, and offer ROI in the form of dividend or rental sharing with the token holder.

Fraction.io basically offers the following full suite solutions:

A property owner could even create his/her own platform to sell fractions of his/her property directly. There are technology
platforms that does white label solutions to help individual property owner to put up their own property tokens platform. Once such example is https://fraction.co.

The crucial consideration for anv property owner who is thinking to dispose or liquidate part of their property through property
tokenization is regulatory. The property fraction token is deemed as securities by most countries. When property owners mint their property into crypto token and market it to the public, it is referred to as ‘Security Token Offering’ (STO). And the listing of any security token and the making of security token offering to the public is typically regulated.

In United States, the STO regulatorv body is Securities and Exchange Commission (SEC), in Singapore the regulatory body is Monetary Authority of Singapore (MAS) and in Malaysia, it is Securities Commission (SC). There are guidelines regulating the listing of the securities token and the subsequent trading of the token.

Impact of FTX meltdown

It is essential to go back to the fundamental difference between a digital asset, cryptocurrency and crypto token.

A digital asset is a non-tangible asset that is created, traded, and stored in a digital format. It is not necessarily built on blockchain. It is merely an asset in digital form.

Cryptocurrencies and tokens are unique subclasses of digital assets that utilize cryptography – an advanced encryption technique that assures the authenticity of crypto assets and distributed ledger.

There are 2 major types of Tokens:

To conclude, there is no physical or tangible underlying assets backing cryptocurrencies or utility tokens. Therefore, cryptocurrencies and utility crypto tokens are subject to market volatility in crypto exchanges like FTX.

Whereas a Security Token is one that is backed by physical and tangible assets. Therefore, the value of the Security token is stable
and is determined by the value of the assets, particularlv in the case of real estate security token that is backed by real estate. The value of real estate will not depreciate or collapse overnight!

Back to the question of whether the collapse of FTX will have an impact on the STO market. I would think the collapse of FTX will
really propel government bodies all over the world to impose more technology (DLT), by eradicating the possibility of counterfeiting or double-spending in the digital and virtual medium.

The key differentiation between the two classes of digital asset is that Cryptocurrencies are the native asset of a blockchain – like Bitcoin or Ethereum which are built on their own blockchain infrastructure.

Crypto Tokens on the other hand, are created as part of a platform that is built on an existing blockchain, like the many ERC-20 tokens that make up the Ethereum blockchain ecosystem.

regulations on crypto assets to come. Besides, crypto investors in the future will be more cautious and gear more towards investing into security tokens that are backed by solid underlying assets and are regulated by proper crypto regulatory bodies.