REIT ASIAPAC
FACTORS POSSIBILITIES / KNOWN EXAMPLES OF BLOCKCHAIN APPLICATIONS
REGULATORY Moving property titles onto blockchains will be a significant first step. Dubai Land Authority is moving property titles on to
blockchains and implementing laws to recognise contracts. Sweden’s Lantmäteriet is working with Evry to simplify the whole
process of property transactions. Singapore is similarly exploring the same concept. In the private transaction process, Propy
has a very visible player who has successfully enabled real estate transactions on Smart contracts to complete.
ACCOUNTS A blockchain-based accounting system could become the norm. If it is combined with Smart Contracts for all business activities
of an asset, a real-time net asset value of a property can be established. Compliance and know-your-client services are also
emerging. On 16 April 2019, Ernst & Young (EY) launched its second-generation EY Blockchain Analyser for financial reporting,
forensic investigations, and transaction monitoring, amongst others. InvestReady, a Securities Exchange Commission (SEC)-
compliant investor verification platform, was launched to provide the investor with a one-stop verification service for multiple
investment platforms.
PLATFORMS Governments are increasingly issuing licenses for exchanges and crowdfunding platforms. On 11 November 2018, the
Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) announced the successful development of Delivery
versus Payment (DvP) capability for the settlement of tokenised assets across different blockchain platforms. This will help
simplify post-trade processes and further shorten settlement cycles, as well as potentially improve the liquidity and reduce
costs for token transactions.
INFORMATION More information is being moved to the blockchain which will increase the reliability of data compared with the internet. The
increasing capability of predictive model technology will pose a big challenge for any logic-driven industry.
DEMAND The world is facing an aging population and probably the most significant transfer of wealth to a smaller number but a younger
generation of people. The willingness of the new generation to share, to learn and invest online, and to gain control will have a
transformational effect in time to come for real estate investments.
The sale of HOT, LIT, and HUT tokens at the inception of the project
or at pre-determined schedules will establish the economic value
of the project. A similar concept of tokenisation can be applied to
every real estate asset class.
at par value of $1 based on a total return of 60% over 3 years, an
increase in projected returns will increase the value of HOT, and vice
versa.
LOAN INTEREST TOKEN (LIT)
T H E E C O S Y S T E M I S TA K I N G S H A P E R A P I D LY
LITs are loans that investors will provide to the project. It will appeal
to investors who want a stable return and a fixed duration for
their investments. Each new issuance of LITs can be auctioned. LIT
prices will fluctuate with treasury bills’ interest rates and/or as the
project’s risk increases or reduces. These instruments can be traded
like current fixed-income products.
The scenario envisaged above is still years away. However, the pace
of the evolution of the ecosystem for a complete tokenisation of real
estate is increasing. The table in the next page summarises some of
the key components and possible technology application that will
accelerate the tokenisation process.
HOTEL USE TOKEN (HUT)
HUTs are hotel-room per-night usage tokens. Each hotel room
may be divided into 330 HUTs per year (assuming 35 nights of
downtime for maintenance). Each HUT owner may use the HUT to
book a room to stay or re-sell to other users. HUTs may be issued
uniquely for an individual hotel room and the day of the year, or it
can be sold as generic usage tokens. Generic tokens will mean an
added step as a hotel booking intermediary is needed to determine
the availability of rooms. The total value of HUTs sold for each year
before construction starts or any pre-determined date will form the
base case for the projected economic returns of the hotel, i.e., the
value of HOTs.
REITs will not be immune to the rapidly changing environment.
A mature tokenisation ecosystem can result in an alternative
scenario whereby investors can create a personalised REIT with co-
ownership of completed assets, co-financing of developments, or co-
development opportunities across different countries. For the more
passive investors, the increasing availability of artificial intelligence
can help them in devising an optimal investment portfolio. Where
does that leave the REITs when this happens? Will the touted
tax benefits be sufficient for REITS to remain as a competitive
investment option? It is something for all of us to ponder and act on
while we still have time?
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