Recently, Max Crowdfund (under the parent-company Max Property Group (‘MPG’), a blockchain-powered real estate crowdfunding platform that connects property developers and investors, has received approval for operation from the Autoriteit Financiële Markten/ Authority for the Financial Markets (‘AFM’) in the Netherlands for its operations. This will commence the platform’s roll-out in partnership with distributed ledger technology provider Jelurida on their Ardor Blockchain Platform. The deal paves the way for a first-of-its-kind regulated platform for tokenized real-estate backed loans.
In real estate, tokenisation would refer to the digitization of securities, alternative assets (such as commercial real estate or private equity), and financial instruments. In this way, they can be programmed (via smart contracts systems) to include ownership rights, transaction history, and other related details. Further, tokenisation would indicate the rules to ensure that distribution and transfers are regulation-compliant as per the government/regulating authority. Tokenisation would aid in reducing costs and increase the speed of creating, issuing, and exchanging assets, promoting new features, administering dividends, and managing other corporate actions. The presence of detailed customisation and rapid issuance would allow issuers to customise digital assets in accordance to the demands of the investor, significantly decreasing any counter-party risk. A reduction in cost also allows the issuers to decrease minimum investment amounts and expand access to a wider pool of investors, eliminating the presence of middlemen in the transactions.
Blockchain-powered real estate crowd-funding would involve decentralised, but regulated property listings, alongside its management and financing component. As part of the platform, the trading of assets, rental agreements, purchase/sale agreements, property task management, and related services would function with ease. In comparison to the existing crowd-funding models, a blockchain model would be more transparent, expedient, and efficient in terms of execution.
Advantages of tokenisation
Tokenisation means that various small and medium-sized enterprises shall be able to increase liquidity by introducing their assets in the markets. Tokenisation is considered one of the most innovative methods of alternate financing in Europe and is ever-expanding with increasing deal amounts. Tokenisation of securities also provides for the issuer to take more careful action in the course of investment as the issuer may restrict any investor who is non-KYC compliant. Since a tokenised asset provides for an investor to invest with a smaller amount of capital, it creates a larger pool of investors. Hence, focussing on start-ups and funds which are looking for gaining traction in their investment during their early stage of business. Moreover other than tokenisation of assets, there is an emergence of other forms of digital assets such as digital securities. Digital securities are nothing but representation of bonds/derivatives/equity etc. in the blockchain. When trying to understand the real-estate blockchain tokenisation framework for entities around the globe, some initial problems that can be recognised are as follows:
(i) the troubles in raising a structure that motivates people to switch to a digital medium, as compared to traditional fiat money that runs prevalent in the real estate industry;
(ii) other inter-twining industries such as insurance, mortgage, and banking, that are not entirely ready to collaborate with the real-estate blockchain framework, can create eventual roadblocks for its smooth execution;
(iii) lack of flexibility in the functioning of such platforms, owing to governmental regulations and non-supportive policies;
(iv) lack of trust in the efficiency of such technologies due to the lack of a proof of concept (‘PoC’) which is used to demonstrate the feasibility and practical potential of any blockchain project in a real-world example, or a demonstration of its practical implementation, generating distrust in the minds of regulators and authorities;
(v) general lack of awareness of the various stakeholders towards the various possibilities of this technological framework; and
(vi) in terms of Blockchain crowd-funding, there can be an issue of ownership and rights, in terms of mortgages, rental properties, and usage.
However, in many parts of the European Union (EU), there still exists regulatory uncertainty.
The Netherlands has always been supportive of disruptive technologies such as the blockchain. The Dutch authorities have always provided for effective policymaking when it comes to decentralisation of assets through the Dutch Central Bank (‘DCB’) and the AFM. Special regards shall be placed into the Dutch Financial Markets Supervision Act (‘DFMA’) for token regulations and securities token offering. Previously, the Dutch regulators have also released guidelines for an innovation hub and regulatory sandbox for the furtherance of blockchain technology.
As MaxCrowdfund steps into its live-launch phase after AFM’s approval, it shall be interesting to see how they cope up with the various obstacles and shape the real-estate tokenization domain, in order to act as a precedent for various Blockchain regulators and entities around the world.
This article is authored by Mustafa Rajkotwala, Officer, Data, and Innovation, BlockSuits.
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