Feb 17

What You Should Know About Real Estate Tokenization Malaysia in Year 2021

In this article, we are going to discuss about real estate tokenization and reit through tokenization in Malaysia.

The real estate market is by far one of the most complex fields due to various rules and regulations. With a myriad of factors to consider such as legal regulations, transaction costs, stakeholder rules, etc., the real estate market is one of the more intricate markets of the 21st century.

However, these complexities create many different dysfunctions while the market keeps on growing. As more experts entertain the notion of blockchain technology and tokenization, it’s simply a matter of time before they send the entire field into a complex spiral.

What is Real Estate Tokenization?

Much like distributing annual dividends to shareholders, real estate tokenization allows property owners to issue tokens through blockchain platforms to represent a certain amount of shares owned for the asset.

Other people can purchase these tokens, allowing them to become partial owners of the asset. It also allows them to be involved in the cash flows and asset appreciation. That said, they too have the freedom to sell any amount of their asset’s shares whenever they want.

Real estate tokenization would therefore replace a person’s interest in a piece of real estate with a digital token. While the whole concept of real estate tokenization seems straightforward, it raises plenty of concerns regarding the future of the real estate market and blockchain technology.

Benefits of Real Estate Tokenization

There are many kinds of benefits that real estate tokenization or reit through tokenization in Malaysia can offer. Some of which include:

1. Definite Proof of Ownership

With blockchain’s immutability, this feature transfers well to real estate tokenization. The digital history of transactions helps every stakeholder and investor to prove their ownership. Thus, helps to reduce the chance of fraud.

Should an asset owner tries to sell a certain token several times, blockchain would record such attempts and show in the asset's history of ownership. This feature makes it impossible for owners to falsify asset transactions and trick investors.

2. Improved liquidity

It’s no secret that investing in real estate is an exclusive game reserved for the rich. But with real estate tokenization, it increases the opportunity for regular people to join the game.

Investing huge amounts of money in a multi-million real estate project can be intimidating but a small investment in the form of token is viable for the average Malaysian. This means that the investor entry is much lower and there is room for fractional ownership.

3. Improved Market Security and Transparency

Blockchain is by far one of the most secure and transparent systems that the digital world can offer. It uses cryptographic encryption to protect tokens that represent the assets and the only way to gain access is via private keys – something only token owners have in their possession. The technology also provides better market transparency by tracking the history of each token and its transactions. Investors can then investigate past dealings and research price to prevent over or underpaying their share.

Steps to Digitising Real Estate

For real estate tokenization to take place, it’s important to follow these three steps:

1. Deal Structuring

Structuring a real estate tokenization depends on various elements such as jurisdiction, asset type, shareholder type, and the applicable regulation. Oftentimes, issuers will tokenize an existing deal to enable liquidity for current investors before raising funds for new offers.

2. Technology Selection

Once the legal structure for the property is set up, you must decide on the technology selection. This step is relatively straightforward and quicker than other steps.

3. Token Creation and Distribution

After you’ve decided on the technology selection and the deal has been structured, your next step will be to launch the token and distribute it to investors.

Types of Real Estate Investment Trusts (REITs)

Aside from investing in real estate tokenization, you can also invest in the following types of REITs through tokenization in Malaysia to diversify your real estate portfolio.

1. Retail REITs

There’s no need to look far if you want to invest in real estate. Your nearest shopping centre is likely owned by a REIT. However, before you invest in retail REIT, examine the trends surrounding the retail industry. Is it sustainable and what’s the future outlook for this type of reit through tokenization in Malaysia?

2. Residential REITs

Another reit through tokenization in Malaysia is the residential REIT. Residential REITs depend on the location of the property. If you consider home affordability, focus on the ones in the city centre as prices tend to be higher. As long as there’s a demand for properties and supply remains low in the city centre, residential REITs should do well.

3. Healthcare REITs

This will be an interesting sector to invest in as the ageing population in Malaysia increases and the cost of healthcare continues to rise. Investing in healthcare REITs means you’ll be investing in the real estate of hospitals, medical centres, nursing facilities, and retirement homes. The outcome of this real estate relies entirely on the healthcare system.

4. Office REITs

As the name suggests, office REITs invest in offices. Investors of this type of reit through tokenization in Malaysia usually receive rental income from tenants who have signed long-term leases. Before you invest in office REITs, consider these: state of the economy, unemployment rate, occupancy rate, surrounding building’s REITs, and capital for acquisition.

5. Mortgage REITs

The final type of reit through tokenization in Malaysia is the mortgage REITs. Mortgage REITs generally provide financing for income-producing real estate such as commercial or residential properties by purchasing or originating mortgages and mortgage-backed securities. Investors of mortgage REITs typically earn income from the interest on these investments.

Other than the mentioned REITs, Malaysians can also invest in real estate via Gene App which offers a financial plan that can multiply your investment, manage and increase your digital assets. You can earn a daily income and convert your earnings to invest in property and jewellery.

Contact us at 011 6939 2180 or email your real estate tokenization or reit through tokenization in Malaysia queries to [email protected]