By Waleed Rassuli, Head of Tezos Gulf
Nearly two decades have passed since the Dubai government issued a decree that allowed expatriates and foreigners to own freehold property in the Emirates.
But ask anyone what the market was like back in 2002, and they will tell you stories about investors waiting for hours, cheque books in hand, to buy their dream home in a city of abundant potential.
The visionary regulation created a multi-billion dollar sector that saw local developers jumping at the chance to cash in on new investment and fill the skyline with more cranes than anywhere in the world —all to build projects that put our tiny desert state on the world map.
Today, another new regulation is set to dramatically disrupt Dubai’s real estate industry and perhaps forever change how we invest in the real estate market.
Democratizing real estate investment
In October, the Dubai Financial Services Authority (DFSA) launched a comprehensive and innovative framework to regulate security tokens. The approach was designed to capture a range of activities relating to digital assets.
The Investment Tokens regulatory framework applies to persons or entities interested to market, issue, trade or hold investment tokens in or from the Dubai International Financial Centre. This also includes authorized firms wishing to undertake financial services relating to investment tokens, such as dealing in, advising on, or arranging transactions relating to investment tokens, or managing discretionary portfolios or collective funds investing in tokens.
Of course, the benefits of tokenization in real estate are massive.
Traditionally fixed, illiquid assets such as real estate can be divided into multiple tokens, fractionalizing the asset to offer investment opportunities to demographics who cannot afford to buy large assets on their own – a move that could truly democratize access to property ownership while improving market liquidity.
Partial investment in real estate is not a new concept. However, digital investment tokens have drawn scrutiny and mistrust due to regulatory ambiguity. Currently, anyone can issue tokens without clear and enforceable accountability because token creators are not regulated financial institutions.
The concern remains that a token might not even have a legal document linking it to a real asset, which is why advances in legislation propel an environment of comfort in the market.
Trillions to tokens
In a 2021 report, London-based advisory firm Moore Global predicted that $1.4 trillion of international property assets will be converted to digital tokens by 2026, representing only 0.5% of the current $280 trillion global property market.
In Dubai, there are many reasons to be bullish on this trend because real estate is among the most popular areas for foreign direct investment and undoubtedly one of the most significant asset classes.
The sector achieved 2.4% growth in the first quarter of this year, contributing nearly 9% of the real GDP. It has been a key factor in helping Dubai’s economy overcome the effects of the global Covid-19 pandemic.
The wider UAE and neighboring Gulf nations are also key players in the real estate sector with multiple opportunities for tokenization across landmark residential, commercial, and industrial developments.
Numerous startups in the region and around the world are already getting ahead of the trend.
UAE-based SmartCrowd, a DFSA-regulated property investment and technology platform that leverages the Tezos blockchain platform for real estate tokenization, says it has distributed over Dh1.5 million in rental income to its community of investors since 2019. Earlier this year, the platform also announced a range of investment opportunities to invest as low as Dh500 in prime locations like Dubai Marina, JBR, and City Walk.
New pools of capital
In addition to expanding financial inclusion by lowering minimum investment thresholds, the added convenience of exchanging tokens on a blockchain provides greater transparency, speed, and efficiency in transactions – which, in turn, will reduce transaction costs associated with real estate investment.
Yet, while tokens lower the barriers to property investment, it’s important to recognize that the rise of investment platforms is also driven by surging interest among millennials who are independently comfortable with financial technology and often prefer alternative investing paths due to their mistrust in the status quo of traditional financial systems.
Emerging markets are home to 86% of the world’s millennials. Even more so, in Gulf countries, Arab millennials, who make up the majority of the region’s population, enjoy huge shares of family wealth accumulated over multiple generations.
Tokenization of real estate could become increasingly popular among millenials— opening up new pools of capital as this digitally native generation enters their peak spending years.
As more awareness and education continues to grow— fueled by a digitally-minded, rising generation— tokenization has the potential to profoundly impact lives and transform the way people invest in real estate.
Change is coming, one token at a time.
About the author
Waleed Rassuli is the head of Tezos’ Gulf operations and focuses on developing the Tezos Community in the GCC region through active engagement with businesses, tech ecosystems and academic institutions.
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