Tokenisation of Property - an Untapped Treasure Trove?

With the massive growth in metaverse developments and investment experienced recently, one question comes to mind; how might we apply distributed ledger technology and tokenisation to the traditional property market?

The answer is yet to be fully explored. However, there is an increasing demand for exploration and, in a virtually untapped market, a blank canvas of routes to consider.

How would tokenisation work? 

Could we create a puzzle of NFTs representing identifiable portions of an office or commercial space? Imagine how this might be applied to a shared office development with each NFT representing a desk space.

Alternatively, an entire property could be divided into tokens with equal rights.

It is easy to imagine a large number of people owning one property. However, how this would work in practical terms is key. For example, to prevent utter chaos, tokens would need to be issued with prescriptive rights in relation to the relevant property. Those rights might include:

• governance - giving token holders a say over certain elements of a property is important, but relinquishing all decision making to the crowd may be fatal. In many cases it might be necessary to appoint a person or entity to be responsible for the management of the property.
• economic/interactive rights - where a property is to be let out, distributing economic returns to token holders would be relatively simple. However, in the example of a shared office space made above, or in the case of a holiday property, things get more complicated. For example, we would need to consider how use would be monitored and how ongoing expenses would be paid. Perhaps the return of a time share style model would help.

Practical implications 

Given the ancient ways of recording and transferring title over property, the first hurdle to overcome in order to achieve true tokenisation is finding a way to adapt and work with traditional record keeping and property registers.

Other points to consider include effecting stamp duty obligations and the ability to meet KYC obligations in relation to proceeds of crime regulations.

Once overcome, distributed ledger technology might provide a golden solution to what has historically been the Achilles’ heel of property - proving title and ease of transfer.

For the public, tokenisation would mean:

• easy access to what is otherwise an inaccessible investment class for many.
• passive income from tangible property.
• liquidity - even for blue chip investors, the ability to step in and out of property investments at the push of a button would be monumental.

In our very own Blockchain Rock (Gibraltar), although limited in space, there are several new mixed use developments in the pipeline. It would be interesting to see how these developments apply smart technology to their buildings, or even use that technology to manage tokenisation.

If you are interested in exploring tokenisation in Gibraltar feel free to reach out.