Million-dollar pieces: Property tokenisation with blockchain

A luxury Manhattan condo development located on 436 & 442 E 13th St in the East Village is the first major asset in Manhattan to be tokenized on Ethereum. Source: NESTSEEKERS

Singapore, SINGAPORE – While there are property investors who have opted to accept bitcoin and other cryptocurrencies for the sake of providing another payment option to entice a buyer in stages, the tokenising of property is also gaining traction with supplementing debt servicing the reason for its natural progression.

Most will find Manhattan hard to beat because of its location. And most easily, a talked-about luxury condominium development in the affluent neighbourhood is now on the chopping block(chain). It’s a 12-unit building located on 436 & 442 E 13th St in the East Village that’s worth an approximately US$36.5 million. The entire building will be sliced and divided by way of an Ethereum-based tokenised shares. The going rate for the penthouse is US$3.7 million.

Historically, the East Village has been popular because of scarcity and increased foreign investment have propelled demand. Luxury properties remains a good asset class because of their location, prestige and potential capital value upside. Demand is usually sustainable for competitively priced projects. Projects with impressive views, creative development features, and a vibrant neighbourhood are usually good bets.

Capital will continue to move towards property safe havens. The deal-clincher may be auxiliary services that look to assimilate retail constituents amid the trendy abodes of well-heeled nest-seekers. And its Nest Seekers International’s Ryan Serhant who is the listing broker for this development. You may know him as that smarmy guy from Million Dollar Listing New York who claims that “by tokenising the debt we can sell with the market instead of against it”. This sounds like a shrewd hedge and a slush fund to offset loan repayments rather than a representation of ownership using smart contracts.

Traditional financial institutions these days take a conservative stance and are slashing their lending margins. By creating a more stable lending environment, with tougher criteria being placed on mortgage applicants. Developer David Amirian says:

“We have the typical bank financing on this property. And this loan matures in January 2019. We decide to take a right turn and tokenise the debt.”

Broker-dealer firm Propellr and blockchain start-up Fluidity are the companies that are looking to make this possible. “There will not be a bank at all,” says Propellr founder Todd Lippiatt. And yet, unlike architect renderings, not all is perfect. A lawyer for Fluidity named Khurram Dara calls it putting a “digital wrapper private securities” which sounds nice but will there enough liquidity? Is there a correlation between the token price and price of the underlying asset? It’s a good move forward nonetheless to trial this.

Closer to the region, The Edge is quizzical of the wisdom behind the shareholders of Country Heights Holdings Bhd in Malaysia approving the use of an ICO to raise funds. The proposed one billion Horse Currency is a utility token backed by MYR2 billion worth of assets. While many are calling this spade an STO and not a utility token or a reward token which has minimal use case scenarios. According to Tan Sri Lee Kim Yew, Malaysian regulators are aware of the proposed ICO with discussions between CHHB and the Securities Commission Malaysia. There’s even going to be a horsey white paper to boot. This is a start and there will other examples in South East Asia that will follow this same route to raise funds.

In addition to assessing one’s financial situation and intention, it is worth noting that various government policies may dictate what can and cannot be done when it comes to legally trade these securitised tokens. Overall, there’ may not be a healthy demand due to uncertain fundamentals, which will not be able to support the market for now.

Gaining the trust of mainstream buyers and building a reputation based on integrity takes time. It isn’t something that many will dive in headfirst. It’s a wait-and-see approach by the rest as it’s determined where these tokens will be sold, bought, and traded.