Tokenised property remains double-edged sword

October 08, 2021 | 09:00
Tokenising property, representing an early stage of blockchain application within the real estate market in Vietnam, is causing controversy due to the risks that investors could face, while the government has not yet made any specific regulations.
Tokenised property remains double-edged sword
Tokenised property remains double-edged sword, illustration photo

Several companies in Vietnam have launched a trading application in which buyers can connect and share capital to buy an a property via crowdfunding, even when they have only $100. This type of investment permits people to invest in property via non-fungible tokens, a kind of cryptocurrency.

Moonka Ltd. in August offered its property on the blockchain platform and gathered shareholders to buy a single property. The ownership certificate of that property is kept by Moonka, and buyers are given an account to manage and follow the property.

According to a representative from Moonka, these properties all have ownership certificates. A property can be sold only if more than 51 per cent of the shareholders agree. Shareholders can then transfer the shares to each other when they want.

At the end of 2020, some other companies such as RealStake and REVEX launched a similar platform to Moonka’s, offering properties divided into many shares to sell to investors.

For many investors with little capital who still want to participate in the real estate market, these smaller share offerings are attractive investment opportunities.

Property broker Do Hoang Anh said that blockchain technology is an outstanding application in the real estate market.

“While it is new in Vietnam, it has been implemented for a long time in other markets and attracts investors with smaller funds. I expect this to be a new trend in the real estate business, along with traditional sales channels,” Hoang Anh said.

However, Hoang Anh said that the current regulations are not yet including this type of business, therefore investors could face several risks. “Investors must consider the prestige of developers that are offering the shares to avoid ownership certificates being used for other purposes,” he advised.

Other investors said that the implementation of blockchain is feasible because a company cannot use the property for other functions as the information cannot be changed once it is implemented in the blockchain.

Meanwhile, Luu Minh, a property investor, said that risks of this type of investment are diverse, including private rights, the legal system, internet security, and even money laundering.

“A successful trade via this type therefore can be reached only if a financial institute guarantees the risks of shareholders,” judged Minh. “The legal system in Vietnam is very different from other countries, especially in property ownership. Therefore, the government must be the judge between a company and the shareholders.”

The sharing of investment capital for properties among many investors was not a method of property investment until recently. “It is rather an financial investment or speculation in technology platforms,” Minh said.

Nevertheless, more and more companies are joining the playground. With the development of the Vietnamese real estate market and the requirement to keep up with the world’s digitalisation, tokenised properties could be an efficient way for investors to receive profits. The problem is that they must know how to evaluate the prestige and capabilities of developers.

In the last three years, some large-scale real estate corporations have spent millions of dollars on digital real estate solutions.

However, one of the most significant barriers today is that legal regulations are behind the need and development of technology solutions in the real estate sector.

Nguyen Huong, CEO of Dai Phuc Land said, “Pioneers in the implementation of blockchain will be under a lot of pressure as the legal framework for digital real estate solutions remains incomplete, especially amid the ongoing pandemic.”

With a large market capitalisation of up to hundreds of billions of dollars like real estate, traditional transaction methods alone could not be enough to meet the general development needs of the market.

“One of the significant barriers to property investment is the very high value of a property. Blockchain helps to easily solve this problem by dividing investment capital through smart contracts in which investors can participate with just a few hundred US dollars. This opens up great opportunities for many small- and medium-sized investors to participate in the market and, at the same time, attracts investment resources both at home and abroad,” Huong said.

Blockchain, meanwhile, could ensure the interests of investors and limit unnecessary risks. Nevertheless, it may take time for investors to get used to this new form of investment and put their belief in it.

According to the Vietnam Civil Code, the fundamental rights of property owners are the rights to own, possess, and use real estate. Meanwhile, the Law on Real Estate Business 2014 has no regulations related to tokenised investments on the blockchain platforms.

“Considering that, real estate investments on the blockchain do not have a legal framework for reference. Thus, if there is a dispute, it is very difficult to distinguish right from wrong and implement sanctions,” argued David Jackson, CEO at Colliers Vietnam. “This new form of investment could help investors with little capital to still be able to participate in the market through smart contracts.”

Blockchain is increasingly applied to real estate because of its distributed ledger technology, which makes transactions more transparent and can also increase reliability.

“This technology also helps cut down on administrative procedures, save time, and reduce costs. Moreover, the encoding of real estate into digital assets and the application of blockchain could help state agencies manage these better thanks to its transparency. Buyers and sellers meanwhile can easily access and connect,” Jackson added.

In Vietnam, blockchain in real estate is limited to tokenised property. However, as these tokenised properties are not yet recognised by the current legal system, the token holders would not be guaranteed any security by the Vietnamese government.

According to Tran Vu, co-founder of property analysts SPE.R, the efficiency of this type of property depends wholly on its managing unit. “The shareholders can have their profit increase if the managing units can increase the value of the property. Otherwise, it could lead to losses for the shareholders,” explained Vu.

According to the MSCI Real Estate Market Size reports from 2019 and 2020, the size of the professionally managed global real estate investment market increased continuously over the past few years, from $7.4 trillion in 2016 over $8.5 trillion in 2017 and $8.9 trillion in 2018 to $9.6 trillion in 2019.

Similarly, Vietnam’s real estate market is also expected to grow rapidly in the coming years, with 30,000-40,000 new apartment units available each year and a compound annual growth rate of around 15 per cent for both residential and commercial real estate, according to Mordor Intelligence.

The MSCI report also states that the real estate market is mainly made up of siloed and independent networks with significant transactional friction between the current systems.

A full utilisation of the blockchain technology could offer several advantages and create a far more transparent ledger system where brokers and agents could see the entire transaction history of a property, opposite to the traditional multiple listing service databases commonly used today.

By Bich Ngoc

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