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In a financial world that is increasingly borderless, real estate is lagging behind. With payments speeding around the globe faster than almost any other medium, real estate investment still often comes screeching to a halt at national borders due to regulatory and tax complexities.
The ways we attempt to solve this urgent problem in the very near future could make or break the future of real estate as a viable investment vehicle in a global world.
Taking real estate investing online
Tokenizing real estate assets is a two-stage process: turning real-world assets into digital assets, and then breaking these up into much smaller digital securities. The third stage is where the investor comes in, buying, selling, and trading these securities in much the same way they would any other security, except that it’s all online and built around blockchain.
Using blockchain gives investors and asset owners a full transaction history. All transactions also require strict cautionary measures such as KYC, AML and sometimes accreditation checks. These steps ensure compliance with guidelines set by the Securities and Exchange Commission (SEC) in the U.S. and other organizations worldwide.
But today, regulations around marketing and selling security tokens vary from jurisdiction to jurisdiction. Certainly, some jurisdictions, like China, ban these instruments entirely, but they’re in the minority. Most have regulations which are very similar and in some cases, virtually identical.
Regulatory roadblocks
Even though security tokens provide the rigor demanded by these regulations, the slight lack of uniformity means that security tokens, in most cases, cannot be traded across jurisdictions.
And that’s where we want to hear from you.
How can we break down these regulatory roadblocks? How can we build a global network where investors can freely trade and buy real estate all over the world, just like they do with stocks and bonds?
Part of the reason for the problem is the way security tokens are structured. They’re usually issued around a separate special-purpose vehicle (SPV), which is a single-purpose legal entity to facilitate fundraising. The SPV is then broken down into parts which are then converted into security tokens, which are then sold to investors.
Because SPVs are subject to regulation within the relevant geographic jurisdiction, if multiple regions want to participate in an offering, under the current model, we’d need to create separate SPVs (essentially, separate security tokens) for every single region.
This doesn’t even come close to solving the problem, for a few reasons:
- Investing in assets from other regions becomes even more complicated
- Offering size is limited to what is permitted in each jurisdiction
- Reduces potential for secondary trading, an essential driver of value for security tokens
The biggest drawback of separate SPVs, however, is losing economies of scale. A single token with a $25 million market cap is far more attractive to both asset owners and a majority of investors than five tokens, each with a $4 million market cap.
Creating a truly digital future
We believe that investors should have the ability to invest in attractive real estate projects, no matter where they are located. Investors in Europe, investors in Asia, investors in Africa, investors in the Middle East, investors in the U.S. This will diversify capital for real estate owners, as well as for investors. It will lower risk, increase gains, and open the door for other types of global financial transactions that are still lagging behind.
We’re looking to the global community of lawyers, regulatory bodies, and anyone else who has a perspective to share on this issue. Help us see a way to break down these barriers.
A truly global investment platform will provide licensing for multiple jurisdictions, letting real estate asset owners raise funds within those regions.
Potential solutions
Perhaps the solution lies in streamlining and rationalizing existing regulation, allowing asset owners to create a single SPV within one jurisdiction and then being able to raise funds globally – provided that SPV adheres to predetermined global standards.
Or perhaps the solution lies in creating a new global regulatory body, like the United Nations, to oversee real estate investment and other financial transactions. Given the rise in financial crime, which does not respect international borders, a regulatory organization could help define and enforce these and other urgent aspects of global finance.
We invite you to share your expertise. Let’s come together and start shaping the future of international real estate investment.
