A Whole New World! Asset Fractionalization, An Emerging Trend that You Can’t Afford to Miss Out! 

Limited capital has been your main hurdle when it comes to investing in real estate? What if I tell you, you can start owning real estate worth more than RM1,000,000 with only RM1,000. Will you also start to consider real estate investment? 

With the gradual proliferation of blockchain technology, investors have begun to bridge the gap between illiquid assets, such as real estate, currency, bonds, or any cash equivalent, and the blockchain ecosystem. 

Since the investment threshold of real estate is relatively higher than that of other liquid asset classes, it has made it more difficult for owners to dispose of or sell existing real estate projects. These vacant properties that cannot be sold have gradually aggravated the problem of property overhang in Malaysia. 

The problem of surplus and slow sales of real estate in Malaysia is not something that has only occurred in recent years. The invasion of the Covid-19 pandemic has worsened the already disadvantaged real estate market. As a home buyer, you need to face more stringent mortgage application standards than before the epidemic; while as a developer, you are facing the dilemma of rising construction costs and being forced to lower property prices in desperation, which led to a less optimistic Malaysian real estate market. 

Acknowledging these pain points, Finnax, then developed an end-to-end property platform that combines real estate and blockchain. Finnax is also the first in the industry in introducing such revolutionary technology among the regions. Finnax will be utilizing the innovative real estate sub-division technology to introduce new opportunities for expansion! Today, let us bring you to understand what is the better solution that Finnax has brought to the Malaysian real estate market today! 

What is Fractionalized Real Estate? 

As the name suggests, when real estate is subdivided, their ownership becomes highly divisible. In other words, the ownership of real estate can be subdivided into many parts, and each divided part will be represented by a digital token (Digital Token). 

With the aid of blockchain, real estate owners can now convert their ownerships of real estate into digital tokens, so that more prospective investors can purchase digital tokens and resell them to other prospective investors. Like traditional real estate investment, the types of real estate that can be tokenized vary, including residential or commercial real estate, as well as industrial or retail spaces. Since tokens are secured by real-world assets, their value will fluctuate with the performance of the assets. 

As an analogy: Real estate developers can subdivide an industry worth RM5,000,000 into 5,000,000 digital tokens, and each token also represents the value of RM1. Investors can now bypass the traditional investment model of preparing large amounts of capital and instead purchase 1,000 tokens, which is worth RM1,000 as part of the investment in the industry. Whenever the market price of the industry rises, the value of the tokens purchased by investors will increase relative to the value of the industry. These tokens can also be traded with other investors on the platform, thereby promoting real estate investment with extremely high liquidity. It can be seen that the system of fractionalized real estate is superior to the existing investment model, helping owners and investors to buy and sell their assets more effectively. 

Why Can't You Underestimate the Trend of Real Estate Fractionalization?

According to a report by Savills, in 2020 alone, the value of global real estate assets will increase by 5% to 326.5 trillion U.S. dollars. Its value exceeds the sum of all global stocks and bonds, and is almost four of the global GDP. As such, it can be seen that real estate is still the most sought-after asset class by global investors. 

Having said that, in fact, global real estate ownership is in the hands of 10% of global investors, however, more than 80% of investors are yearning for some type of investment in real estate. Therefore, the fractionalization of real estate can provide an alternative solution for this, so that the fractionalized property ownership can also flow into the hands of other investors from different classes. 

Just like the unique advantages of the above-mentioned blockchain, a good real estate project can raise funds easier, faster, and at a lower cost. As long as the real estate is fractionalized, investors can enjoy more investment liquidity and obtain investment types that were previously unavailable on a global scale. 

According to data generated by KPMG, one of the world's largest tokenized asset transactions involved the partial tokenization of a luxury hotel in London. The property is valued at US$600 million, and 49% of its ownership has been converted into fractionalized real estate ownership. 

In addition, one of the luxury hotels in Delaware, St Regis, sold 18.9% of the resort's ownership through digital tokens for US$18 million. This digital currency called Aspen Coins can be purchased with U.S. dollars, Bitcoin and Ethereum. 

These ongoing instances indicate that all over the world, both commercial real estate operators and real estate investors have come to adopt and utilize this new real estate transaction method. 

Are You Ready for the New Trends in the Future?

As an industry pioneer in Southeast Asia, Finnax is a platform that combines fractionalized real estate ownership and blockchain technology. 

Finnax brings together professionals from different fields, including blockchain, finance, legal, and property industry expertise, to create an end-to-end property fractionalization platform that can rewrite the potential of the Malaysian real estate market. 

Since it aims to revolutionize the property market with a view to benefit investors, one of Finnax's plans is to unlock liquidity for owners. This would enable owners to maintain their control over properties, meanwhile allowing tenants to obtain minority ownership of the property. This particular project, which is named Blockchain Rent-to-Own Scheme (BROS), mainly assists tenants to rent by the method of “Rent First, Buy Later”. Tenants will then subsequently gain partial ownership of the property after fulfilling certain conditions. In this way, property owners’ control over real estate will not be diluted, meanwhile, the rental rate of real estate will be increased at a consistent pace, arriving at a win-win situation.

If we were to go back in time, 20 years ago, you were told at that time that online shopping will be the dominant trend in time to come, which completely changes our consumption habits. Would you choose to believe it then? Similarly, the widely used blockchain is about to create more possibilities for new trends to disrupt traditional industries. Finnax invites you to no longer wait and see, but to become a part of this trend and start to reap the benefits from it!

Visuals courtesy of PIXABAY & UNSPLASH