Security tokens will boost multibillion dollar Asia-Pacific investment property sector, market players say
- We expect the use of security tokens to rise rapidly and boost liquidity, Colliers executive says
- Initial adoption will be from income generating properties and development projects: digital asset exchange HKbitEX
The multibillion dollar Asia-Pacific investment property market could be boosted by the use of security tokens, which could allow individual professional investors to take part in large-scale projects with entry tickets prices possibly as low as HK$1,000 (US$128.41).
These tokens – typically asset-backed digital representations of ownership or other economic rights in an underlying asset – will allow individual professional investors to take part in large-scale projects. They will also let developers and asset owners raise funds without fully disposing of their projects, according to market players.
“While we expect investment property transaction volumes across Asia-Pacific should rebound strongly in 2021, we expect the use of security tokens to rise rapidly and boost liquidity,” said Lau Chun-kong, the managing director of valuation and advisory services in Asia at real estate consultancy Colliers. The volume of such transactions amounted to US$184 billion last year, according to Real Capital Analytics.
Security tokens are tokenised digital securities created through security token offerings (STOs) and are traded using the blockchain distributed ledger technology. For issuers, STOs provide an alternative fundraising channel that offers greater efficiency, lower costs and a broader base of potential investors, according to the first edition of a real estate STO white paper series jointly published by accounting firm Deloitte, digital asset exchange HKbitEX, Colliers and law firm Sidley Austin.
For investors, STOs offer access to a new world of previously inaccessible investment opportunities by offering fractionalised interest, secondary market liquidity and information transparency.
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Currently, less than 1 per cent of transactions in Asia are leveraging STOs, according to HKbitEX. There have been no use cases in Hong Kong yet.
“We anticipate accelerated growth in STO transactions over the next three years, with real estate financing participants being among the first to embrace [these offerings],” said Gao Han, the founder and CEO of HKbitEX.
AspenCoin, for example, raised US$18 million through an STO in the United States in 2018. These security tokens represented the fractional equity ownership of The St. Regis Aspen Resort, a 179-room luxury hotel in Colorado. The price per token was US$1 with a minimum investment hurdle of US$10,000. The total offering represented an 18.9 per cent non-voting equity stake in the property.
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“Initial adoption will be from income generating properties and development projects, as these are straightforward and the values are easy to understand from an investors’ perspective,” said Ken Lo, co-founder and chief strategy officer at HKbitEX.
Investors will be able to exit through a secondary market, as the tokens can be traded easily and efficiently over the counter or on an exchange, according to the white paper series. The general minimum entry ticket could range from HK$1,000 to HK$10,000, said Lo. The exchange is working on getting a license from the Securities and Futures Commission (SFC) for such tokens, which it hopes to acquire over the next two years, he added.
According to the SFC, these security tokens are complex financial products offered to professional investors with a portfolio, including money and securities, of at least HK$8 million or its equivalent in any foreign currency.
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STOs will help ease “shortcomings and restraints” in the real estate industry, said Raymond Wong, senior general manager of sales at Henderson Land Development. These shortcomings and restraints include high development costs, high construction costs, high price of investment in properties or homes, and lengthy and complicated procedures, he added.
Additional reporting by Bobo Chan
