“TOKENISATION will transform real estate and make it liquid. It will democratise home ownership forever!”
If you’re sick of hearing this pitch with nothing to show for it, you’re not alone.
Despite being the world’s oldest and largest asset class, real estate is among the least tokenised.
The reason lies in how property tokenisation works. There are two parts.
First is having a blockchain-based registry to record properties and notarise transactions.
This is crucial for Malaysia’s Torrens system, where registration at the Land Office is required to legally protect the property owner.
Once this foundation is in place, the second part make sense: the unbundling of property rights such as selling off shares or fractions, assigning rights to future rental, or subdividing land.
In a theoretical blockchain transaction, the various steps, such as offer acceptance, credit approval, deposit, contract signing, and stamping, can be streamlined into the same workflow to enable greater transparency and oversight of the handovers and time lag between them.
And typically, a ‘smart contract’ is used for the escrow of deeds and downpayments between buyers, sellers, and banks where ownership is transferred automatically when all conditions are met.
While this entire process cuts the time and costs of property trading significantly, getting all stakeholders aligned is much harder than it sounds.
Thus far, very few countries have deployed blockchain registries at the national level – in fact, you can count them with one hand, and even so most are pilots!
Nonetheless, tokenised real estate is being sold today. How’s that possible?
Without the first part above, buyers won’t have proof of ownership.
Instead, as a workaround, buyers get digital tokens that represent their investment units (as indirect co-owners) often created via special purpose vehicles or complex corporate structures.
In practice, this is old-fashioned asset securitisation in new-tech packaging; and to this point, real estate investment trusts and collective investment schemes have been doing the same thing for decades!
Now the story is different if title deeds are issued as Property Token Ownership Certificates, which Dubai does.
Over there, the Land Department records all real estate contracts with linkage to the Electricity & Water Authority, Ejari tenancy platform, and the Emirates Identity Card to check the validity of its residency visas.
Saudi Arabia’s Real Estate Registry is integrated with an end-to-end token marketplace to serve global retail investors, not just institutions, from listing and due diligence to transfer and settlement.
Comparing these to Malaysia feels gratuitous.
Our registries are largely computerised but physical titles are still required; records are spread across numerous land offices at state and district levels, with fragmentation in some cadastres (for example, 2D data for 3D multi-level properties) and frequent use of temporary qualified titles.
By contrast, Sweden and Georgia had fully digitised and centralised systems before migrating to blockchain.
We have a federated digital identity system, which recently became blockchain- based (MyDigital ID).
While this is a good starting point to combat fraud, the main challenge is the operational intricacies of running land administration on blockchain, an immutable append-only database.
Latin American case studies showed reskilling issues and serious municipal resistance, some leading to project abandonment (Graglia, Mellon 2018).
More pressingly, our common law has not definitively recognised digital tokens as proprietary assets, which peer jurisdictions such as Australia, New Zealand, Singapore, Hong Kong, and the United Kingdom have done.
There are other sticking points: Although Malaysia prescribes tokens as securities, they are neither shares nor indefeasible titles, and are contractual.
And if logic applies, how can tokens be a fractional ‘digital twin’ when real estate is indivisible? Expect widespread industry pushback, too.
Intermediary roles are hardcoded in conveyancing, and entire professions exist to capitalise on bureaucratic friction; official procedures, forms, filing and reporting are baked into the whole value chain and can’t be rewired on the fly.
Who can blame them when global empirical data show the resale rate of property tokens to secondary buyers is only 2% (Journal of Banking & Finance 2023)! What liquidity hype is there when our local subsale absorption rates are much higher! The reality is, tokenisation isn’t a panacea.
It won’t cure ‘sick’ projects and rising costs in housing. The current market lacks blockchain integration and regulatory readiness to woo foreign investors.
Land reform is primarily a political agenda, and there aren’t commensurate benefits to justify an economic directive either, especially with similar automation initiatives afoot.
We may have waited years in vain for the wrong solution and remain stuck, because we misdiagnosed it as a crowdfunding problem from the start.
Meanwhile, the tech spin continues: Just wrap the offer in tokens and call it a revolution!
Edmund Yong is director of the Generative AI Association of Malaysia and ambassador of the Global Blockchain Business Council founded in Davos. The views expressed here are the writer’s own.
