Tokenisation of Securities: Real World Applications — Property (Part 2)

Property is an illiquid asset class. It is very difficult to release equity from a property under the current ownership model. However, tokenisation seeks to remedy this and create liquidity in a historically illiquid market.

Previously, we explored how a property can be tokenised and the ownership fractionalised into shares, facilitating secondary trading and thus creating liquidity. Tokenising properties has the potential to open up the market to a much wider pool of participants, increasing liquidity and making it easier to trade.

In this instalment, we look more closely at the process of tokenising a property, considering the types of property that could benefit from tokenisation, and how these tokens could then go on to be listed and traded on the Tokenise platform.

How Does Tokenising a Property Work?

The specifics of tokenising property will vary depending on the transaction — but a common denominator between these is that all transactions will be recorded on a blockchain via a smart contract. Michael explains this in more detail:

The specifics will depend on the rights attached to the smart contract (token). The likelihood is there will be a register of token holders, and that will then reflect their ownership. This register might be maintained by a lawyer, accountant nominee, or a registrar.”

Distributed Ledger Technology (DLT) allows for an immutable and transparent record to be kept showing all transactions relating to the property. The maintenance and management of the property also vary according to the original agreement. So whether a property could be re-developed without permission from all token holders would depend on what rights were attached to the ownership on sale. Michael covers this in more detail:

If the majority token holder wished to redevelop the property, they may need to seek permission from all other token holders. This depends on the original construct of the agreement. Some may not have voting rights and only the ability to receive an income stream and an increase in the value, others will give full ownership and voting rights.

Normally there are certain conditions that would have to be met, for example, 75% of the owners wish to redevelop, or it might be a simple majority. Depending on how this is constructed, and if there are no changes to that, will help dictate how the properties are developed, bought, and sold. Ideally, the token holders will have a say in the destiny of their investment, but it is also worth mentioning that not all decisions should be made by all token holders as it would create too many barriers.”

Rather than adding barriers, this structure of investment once again adds more transparency and liquidity to the property market, with investors having a clear pathway as to the desired level of involvement they wish to have regarding the maintenance and day-to-day operations of the property.

Is There an Ideal Investor or Property for Tokenising?

It may be easy to assume that only new properties, designed purely with the idea of tokenisation, would be viable for this method of investment. However, Michael believes this isn’t the case:

“I actually think all property types can benefit from tokenisation. In practice, I think commercial development would be best suited initially. In addition, residential property development or real estate funds lend themselves well to tokenisation. We have also seen projects that help with the rent-to-buy marketplace in residential property, as well as hotel, commercial, and infrastructure projects.”

While new commercial developments may initially become the standard-bearers for tokenisation, once tokenised property transactions become more mainstream and widely accepted, it is feasible that this model could be adapted to suit all transactions. It is a potentially groundbreaking change to the property market that could pave the way for smoother and more liquid transactions throughout.

But what does this mean for the average investor? Michael thinks it will open up a much wider market:

This can mean that they can have a property portfolio of investments, thereby spreading the risk to different sectors and regions around the world. They can target (subject to local rules) certain regions or types of property. Imagine being able to buy into the success of WeWork for office accommodation or a Hilton Hotel. Even being able to buy property in places like China before the huge boom in prices.”

As with all blockchain transactions, it would break down the international barriers we often see in property investment and make it a truly global enterprise.

How Might a Property Be Listed on the Tokenise Platform?

Tokenise is aiming to create a stable ecosystem which allows for the trading of tokenised securities, including property transactions. It’s our mission to provide a trusted and flexible platform that will attract new and established investors to the token economy. Michael talks through the process of listing a property on Tokenise:

“If the project is under €8m it could be listed through the UK Tokenise project and not need a full prospectus. If it is over that amount, then it might list on another Tokenise market, or it will require a full prospectus. We are currently working on innovative solutions for the listing of property as we have already seen a huge demand.”

At Tokenise, we believe that the token economy is moving towards a more secure and regulated future, and we’re excited to be part of this movement, leading the way in tokenised securities. The Tokenise mission is to provide a flexible and stable platform endeavouring to facilitate the simple and easily-accessible trading of security tokens.

Tokenise

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Kession Capital

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Tokenise is a Kession Capital Limited brand.

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