Here’s what digitising the real estate space entails

The global real estate industry is over $228tr in size and increasing, making it the most significant investable asset. However, most people are unable to access it due to high capital costs, complicated transaction processes and restricted deals.The technological innovations in digital assets, blockchain, and NFTs will digitise the real estate asset class, making the investment experience accessible , liquid and 100 per cent digital.In the future, with the liberation of regulatory policies in the MENA region, especially the UAE, more doors are being opened for the masses. For example, real estate crowdfunding has opened the door for the average person to participate in fractional ownership of residential properties for as little as Dhs500.

FUTURE TRENDS TOWARDS CRYPTO
The rapid adoption of digital assets has been hurtling forward at speed to disrupt many industries. The sector is now ripe for innovation and disruption, where it can revolutionise itself with the appropriate regulatory policies on digital assets for real estate from regional regulators. As a result, representing an interest in fractional ownership of a real estate asset with a blockchain-based token can immensely benefi t the industry and end-users. New business models can be enabled by the increasing maturity of digital assets, decentralised autonomous organisations (DAOs), and decentralised fi nance (DeFi) services.Digital assets and blockchain technology will enable a more transparent operation, allowing tamper-proof recording of ownership shares, which cannot be altered after issuance. In addition, it will enable accurate secondary trading where peer-to-peer buying/selling can flourish, making it possible to provide the ability to buy and sell ownership shares via the platform. This transaction of asset transfer is also stamped on the blockchain. Achieving immediate liquidity of real estate assets by utilising principles of DeFi can enable sophisticated investors and digital asset holders to gain access to real estate investing.There are many digital asset-enabled real estate products that can be created in the future such as:

Collateralised borrowing:
With this, an investor can stake their property/SPV (or special purpose vehicle) ownership shares to borrow digital platform assets from the DAOs.
Tokenising funds for sophisticated investors:
Existing funds are likely to be regulated through existing policies. NFTs/tokenisation can be a way to produce cost savings for funds and provide access to a broader investor base.

Other potential products include, but are not limited to, security tokens for single assets, utility and hybrid tokens for fractionalised private residential, and debt securitisation that is block-chain-based smart contracts to lower the administration costs of servicing debt.

Due to the UAE’s unique position, where an attractive real estate market exists, and the financial services industry is constantly innovating with an increasing appetite for safe digital assets, cryptocurrency-enabled business models are expected to flourish. If multiple players and other key stakeholders can continue to work together, an innovative industry can be created, one that is a global leader – built on the core foundation of technology and regulatory innovation.

Musfique Ahmed is the co-founder of Smartcrowd 

Taken from GB Invest February 2022 edition