Hong Kong start-up Fraction sells Thai beach villas and townhouses in US$150 tokens, making real estate affordable in bite-size slices

A Hong Kong-Thai start-up is using blockchain to slice up a US$462 million portfolio of Thai properties, selling them in security tokens
Security tokens can be used in Asia’s investment property deals, expected to reach US$268 billion in 2025, Deloitte says in a co-published whitepaper

Blockchain

Georgina Lee

Published: 10:30am, 2 Oct 2021

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A Hong Kong-Thai start-up is using blockchain to help three Thai developers sell down their stakes in a portfolio of Phuket beach resorts and downtown condominiums, slicing up the US$462 million hard assets and selling them for less than the cost of an iPhone each.

The three developers, including Magnolia Quality Development owned by the Chearavanont Family of the Charoen Pokphand Group conglomerate, teamed up with start-up Fraction in putting together a security token offering slated for the first quarter of 2022, targeting both Thai and offshore investors.

The other two developers are Phuket’s Baba Beach Club developer Charn Issara and the Bangkok Nirvana @Work Ladprao Kaset – Nawamin town house developer Nirvana Daii.

Securitisation of real estate assets via tokens, in this case comprising rental properties in Thailand, is an emerging fintech trend, but with few takers thus far. Such blockchain-based tokens represent ownership interests, or entitle the token holders to income, dividends or revenue streams generated from real assets.

“Blockchain enables us to offer the ownership of an asset directly, rather than owning the asset through investing in the stock of a company, which could be hard for investors to understand,” said Fraction’s co-founder and chief executive Ekapak Nirapathpongporn.

The Baba Beach Club in Phuket. Photo: Handout.

Contrasting a traditional stock of a company, its security token represents single units and floors of real estate projects, and this, he argues, is easier for investors to pick and choose which projects they prefer.

By dividing up illiquid, chunky assets such as real estate into smaller, fractional digital tokens, blockchain promises to tear down the high barrier of investing, such as through private equity funds which have been accessible typically by high net worth investors with a minimum of US$5 million.

The Residences at Mandarin Oriental, Bangkok. Photo: Handout

Fraction was approved last month by the Thai securities regulator with an “ICO portal” licence, which would enable the firm to launch a security token offering (STO). The firm seeks to launch a security token offering backed by total assets estimated at US$462 million from three Thai developers.

For Magnolia, the developer behind The Residences at Mandarin Oriental in Bangkok, one project for potential inclusion into the security token offering is Mulberry Grove on Sukhumvit Road, comprising 287 apartment units in a 30-storey building.

Investors could buy a token for 5,000 baht (US$150), and each token will entitle them to dividend payment backed by rental income from these properties, Ekapak said. Both completed, and under-construction properties could be included into the token offering, he said.

It is unclear what implications such an arrangement would have on the cash flow that an investor could expect. Still, investors will be able to trade the tokens through a licensed digital asset broker in Thailand.

Baba Beach Club in Phuket. Photo: Facebook.

“This token offering would enable our company to achieve cash-flow break-even,” said Ekapak, adding that the start-up is currently seeking to raise up to US$1.5 million from institutional investors.

Aggregate transactions of income-producing properties in Asia Pacific totalled US$184 billion in 2020, and is expected to increase to US$268 billion in 2025.

Part of such volume could be done through security tokens, according to Deloitte’s Real Estate STO Whitepaper published with the law firm Sidley Austin, cryptocurrency exchange HKbitEX, and the real estate services provider Colliers in September.

“We expect usage of security tokens to rise rapidly and boost liquidity in the investment property market,” said Lau Chun-kong, managing director of valuation and advisory services for Asia at Colliers.