Tokenisation and asset-backed securities making impact on real estate market

June 24, 2022

The emergence and gradual adoption of fractional ownership of real estate and digital tokenisation of assets looks set to transform the landscape of capital markets in the long term. It will lead to more retail investors entering this sphere, previously limited only to institutional investors and the ultra-high-net-worth individuals.

These new financial products and technologies aim to level the playing field and make real estate investing more accessible. It is made possible by advances in blockchain technology, with regulators keeping in step with this digital ecosystem.

According to Desmond Sim, CEO of Edmund Tie, tokenisation of real estate cannot be categorised as either a disruptor or an enabler. “I think it provides a good alternative to investing in capital-intensive assets like real estate,” he says. “For sellers, it represents a new approach to fundraising through fractional ownership and widens the demand pool.”

The regulatory landscape is keeping pace with the digital business environment. Last month, the Monetary Authority of Singapore (MAS) introduced a pilot programme, Project Guardian, to explore what a future regulatory framework might look like, and set the foundation for an open, interoperable network.

Bite-sized investments

Singapore is home to a few fractional investing companies. One of the more established in the market so far is homegrown fintech company Fraxtor.

Fraxtor is an MAS-regulated, real estate investment platform that offers investment opportunities in bite-sized amounts for as little as $20,000.

Traditionally, investing in real estate assets is a capital-intensive venture limited to private equity firms, property developers and institutional investors, says Oliver Siah, co-founder and group managing director of Fraxtor. In a market like Singapore, where asset values are high and stamp duties one of the highest in the world for international property buyers, it’s even more challenging for the ordinary investor.

In Singapore, local home buyers have to pay 25% upfront — 5% downpayment in cash and another 20% in cash or Central Provident Fund savings — when buying their first home. If it is their second residential property, the cash upfront would be 55%, and the additional buyer’s stamp duty would be 17%, instead of 12% previously.

“This is daunting for small-time investors, and they are not able to fully diversify their portfolio if their entire investment is locked in on one investment property,” says Siah.

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