When it comes to blockchain, it may be that the public's functional perception of it stays at the public ledger that records cryptocurrency transactions in order to achieve "immutability", that is, no data in the blockchain can be changed or modified. But have you ever thought that blockchain technology is not only used for currency, liquid assets, or any electronic products, but can be applied to traditional assets, such as real estate, and even introduce a more efficient investment model for it. 

As a real estate investor, you generally start with residential or commercial real estate. The most significant benefits of investing in real estate financial products usually include relatively stable cash flow and long-term holding assets with the ability to generate passive income and increase in value. 

Commercial properties which have a higher barrier of entry due to their higher price points, properties such as office buildings, medical centers, hotels, shopping malls, retail stores, or warehouses will discourage individual investors who have limited funds from investing in them.

There are many potential applications of blockchain technology in the real estate sector, and asset tokenization is one of them. Through asset tokenization, the ownership of real estate is converted into tokens, in the form of digital tokens or digital securities. These tokens run on a blockchain platform, and each token represents a proportional portion of an asset that can be transferred at any time. Any asset or business can be broken down into small parts that remain in the form of tokens, with equal rights and value, that anyone can buy anytime, anywhere on the blockchain platform. 

As an industry pioneer in the Southeast Asia region, Finnax understands the demand for fractionalized real estate and has developed a platform that leverages blockchain technology. Real estate fractionalization, i.e. tokenizing assets, it provides potential investors to participate in micro size/bite-sized investments. This will bring in new liquidity to the property sector and with it introduce better financing methods for homeowners. 

Finnax is the Leader in Southeast Asia Combining Real Estate and Blockchain

Finnax's end-to-end platform is positioned to improve real estate transaction efficiency, cost, security and liquidity for the real estate market by "fractionalizing real estate", thereby creating a win-win situation for owners and investors. Finnax design is for the long-term play hence Finnax has gone through the regulatory framework to obtain approvals from the relevant authority, namely via the regulation provided by the Monetary Authority of Singapore (MAS). 

Blockchain is Reshaping the Real Estate Market

To understand the potential impact of the technology of "fractionalized real estate" on the real estate investment industry, it is necessary to first understand the investment climate faced by the Malaysian real estate market today. Under the impact of the pandemic, in order to promote economic recovery, governments around the world have adopted various economic easing monetary policies, even reaching an unprecedented level of quantitative easing. Although this policy is to ensure sustainable consumption among the retailers, it also lays the groundwork for the inevitable inflation in the future. 

Labour costs, material costs and construction costs will continue to hike due to inflation. The pool of potential property investors is getting smaller, and this is where "real estate fractionalization" comes into play. In simple terms, fractionalization of real estate is the division of its ownership into parts, and each part will have a token that reflects its value. Using blockchain tokenization, permissionless global accessibility, asset tokenization, instant settlement, and peer-to-peer transactions all play a huge role in providing asset liquidity. 

Finnax enables real estate investors to enjoy additional benefits through the tokenization of the blockchain, including: 

i. Commercial Real Estate Owners Can Enjoy More Financing Options 

In today's real estate market, selling parts of a single property is apparently impossible. In the case of a tokenized apartment development in Manhattan, however, the developer decided to launch a token sale as a financing option. The project itself was initially funded by traditional construction debt, but as the term expired, the developer turned to tokenizing the ownership of the apartments to raise funds. 

According to the developer and its team, tokenization will enable more investors to buy ownership of Manhattan properties and generate the cash flow needed for development without the stress of bank loans. 

Thus, asset tokenization allows developers to list on the secondary market to sell shares of their real estate assets. A portion of the property's shares is converted into digital tokens, which can then be sold on the global market, making them available to investors. The emergence of Finnax will allow owners to have a more flexible approach to real estate. 

ii. The owner of commercial real estate while retaining title to the property 

Owners will also be able to sell some of their property and liquidate necessary but not all assets if they want to retain control of a property project. Owners can choose to limit the issuance of asset tokenization to a certain percentage of the asset—say 20%—to retain a majority stake, while being able to get funding for other developing projects. Finnax's tokenization service can help owners more effectively control their real estate projects, especially the equity part. 

iii. Blockchain powered land registry

Since June 2016, the Swedish Land Registry (Lantmäteriet) has been testing ways to record property transactions on a private blockchain. According to consultancy Kairos Future, the scheme could save Swedish taxpayers more than €100m (£91m) a year by eliminating paperwork, reducing fraud and speeding up transactions. This smart contract framework holds copies of records held by land authorities and other institutions such as banks. When land titles change hands, every step of the process is verified and recorded on the blockchain, and once recorded cannot be tampered with.

The latest phase of testing involves smart contracts that automate transactions on the blockchain. For example, a real estate sale can now be completed by automatically verifying digital signatures, without the need for the buyer and seller to sign the contract in person. 

Blockchain significantly speeds up the normal processes of the real estate market. Since users have access to all the information stored on the blockchain, they save a lot of time when acquiring data related to 

property or land - title deeds, land registers, technical information and surveys, joint ownership information, all of these become real-time data that can be instantly verified. 

As technologies related to blockchain and fractionalized real estate gradually enter the mainstream, relevant institutions in other countries will follow suit. As the first platform in Southeast Asia to combine real estate and blockchain, Finnax has also joined the ranks, giving homeowners or landlords a high degree of security on the system.

Visuals courtesy of PIXABAY & UNSPLASH


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