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Is fractional ownership and tokenization the future for property investment?

Property Investor Today has covered the work of Smartlands - the first regulated blockchain-based crowdfunding company in the UK, and the first to tokenise property in Britain – a number of times in the recent past.

Here, to get a greater insight into tokenisation, cryptocurrencies, fractional ownership and what these could mean for property investment, we speak to Arnoldas Nauseda, CEO of Smartlands.

Explain how tokenisation actually works…

If you and your readers know what ‘public issuance of shares’ means, congratulations, you now have a reasonably firm grasp on how asset tokenisation works. We now have the technology to turn your title right as an investor to any share of any asset in any asset class into a tradable digital token - that’s it in a nutshell.

The difference from an IPO is that, again, because of what the blockchain technology can do for us, it’s much cheaper, much faster and much more secure to issue shares through a Security Token Offering (STO).

Is fractional ownership and tokenization the future for property investment?Most importantly, when asset owners issue shares of their assets digitally, they are giving opportunities to a whole new type of investors - the ‘everyday people’. Depending on the platform, the investment buy-in can be set as low as needed for anyone to participate. Literally, anyone with a bank account or a crypto wallet, or both, can be introduced to the concept of ‘securitised fractional ownership’, which we at Smartlands consider our claim to fame.

The regulatory framework for this process is now in place, and the secondary market for unlocking the liquidity is rapidly forming (for instance, Smartlands is partners with Archax whose upcoming security token exchange is slated for launch before the year’s end). 

Do you genuinely think fractional ownership and cryptocurrency is the future for property investment, or will it remain a more niche market?

Absolutely. The future of investing in property lies in the digital realm. Consider the liquidity factor. The Holy Grail of asset tokenisation is enhanced liquidity. Real estate is traditionally one of the least liquid asset classes and to “liven it up” through digitising it we have to reinvent the concept of a share.

When the right to a share of an asset is represented by a piece of software with an embedded contract, automated compliance protocol, and many other things investors crave to have in one place without an intermediary, it’s a dream come true, wouldn’t you agree? And that’s just one aspect of asset tokenisation, albeit the most important one in my opinion, that both investors and asset owners can benefit from greatly.

As well as the student accommodation complex in Nottingham, and the possibility of a £500 million residential high-rise property in the UK, are there plans to tokenise further properties in the UK?

Of course. The UK is our turf and London is our home. Smartlands Platform is an appointed representative registered with the FCA. The Nottingham PBSA is not just our first tokenised property; it’s actually the first for the whole country. We have a pipeline of potential investment offerings in commercial and residential real estate, renewable energy, agriculture, technology and other sectors of the real economy.

Generally, our plan is to increase our portfolio of tokenised assets to up to $100 million by 2020 and pass the $1 billion mark by the end of 2023 - and eventually expand our business from the UK to other countries and continents.  

What sort of yields and returns can investors generate when investing through the Smartlands platform? Is the money received in pounds sterling or some form of cryptocurrency?

Yields will depend on the nature of an asset and the way a project is structured, but we are specialising in high-yield assets only. Recently we have announced new additions to our current pipeline of projects.

There we list some of the industries we plan to continue to focus on. Both commercial and residential real estate, as well as student accommodations, remain our priorities. But we are planning to continue to get involved with agriculture, the extraction and collection of natural resources. The industrial property market, renewable energy, and various technology companies are all very lucrative, and they are all calling our name. These are the industries that are ideal for tokenisation and the projects we’ve been pitched so far are fantastic. 

In terms of dividend pay-outs, again, it’s very much project-specific, but Smartlands is very well equipped to accommodate any type of accredited investors and any type of asset. For instance, with the Nottingham offering the minimum investment threshold is 500 GBP (in cash or cryptocurrency) and it is estimated that investors will receive a forecasted average dividend yield of approximately 5.74% per annum and a forecasted return of 15.72% per annum including capital growth. 

What would you say to someone who is wary of the idea of investing in security tokens, a blockchain-based platform and cryptocurrency (which can be famously volatile)?

Forget cryptocurrencies. You’re not investing in cryptocurrencies. You’re not investing in a platform or software. You are investing in underlying assets, real economy assets, and security tokens are simply an instrument of crowdfunding your investment.

When you invest in a piece of real estate - that’s your asset, that’s your investment. Just like in a traditional form of the stock market, security tokens represent the immutable right of ownership in an asset and allow investors to receive dividends or profits.

The fact that a project is structured in a way that allows the asset owner/manager to crowdfund it using security tokens is a bonus, a benefit. That’s the sort of outlook that you have to learn how to maintain: security tokens are financial instruments just like tons of others that represent a certain value. They are contracts that bind your right to a share in an asset. 

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