It might take more than clever ideas to get Asian developers to tokenize their prime properties…like a crash.
One of the most exciting prospects for digital finance today is the tokenization of illiquid assets such as real estate. A variety of firms are attempting to bring this model to Asia, by focusing on the benefits to the investors. But what’s in it for the property developers?
Leo Lo, owner of Fonto, a Hong Kong-based real-estate surveyor and financier, says he is looking at building a blockchain-based platform for tokenizing real estate – in Singapore, where the regulations are better.
But in addition to regulation, he says the problem is that property developers don’t seem convinced that tokenizing a portion of a development is worth it. It’s unlikely, he says, that any prime property will be tokenized unless there’s a sharp market downturn that leaves developers hungry for cash.
In the meantime, the emphasis will have to be on more basic, less sexy projects such as getting properties documented on a blockchain. Lo has a stake in a company that has worked with Bank of China and ASTRI, a Hong Kong government-backed institute, to put mortgages on a distributed ledger.
“Securitization and STO [securities token offerings] are the second stage,” he said. “Institutional investors need to see titles on the blockchain first.”
Other firms in Asia are working on exchanges and market makers for real-estate DSOs. But Lo says this won’t be enough. “You’ll still need a real-estate developer that’s got credibility to give tokens a good reputation.”
Leo Lo of Fonto thinks it’s worth trying to develop a DSO business that’s based in Singapore, because of its better regulation, but using assets from Hong Kong or mainland China. Even so, he says it’s difficult to get developers to experiment in alternate financing around a prestige property. “Incumbents are rich, and slow to change,” Lo said. “They’re happy with the traditional way of doing things. They can easily sell and lease their prime properties. Look at the residential sector: there’s always a queue to buy new flats.”
Finfabrik, a fintech in Hong Kong, had one such project last year but insiders say the developer it was working with decided to drop the scheme.
The risk, Lo says, is that the first Asian DSOs won’t be attractive projects, as developers will only agree to tokenize low-quality properties.
But he is optimistic that tokenization will happen, because it provides liquidity to both investors and developers. Echoing Zaccagnino, he thinks DSOs can improve the margins on developing out-of-favor sites. It’s just a question of how long – and whether we need a property bust in Hong Kong to make it happen.