Regulations Help Fractionalized Real Estate to Grow Further

The development of asset tokenization may be hampered due to a lack of clear laws in a country. Many businesses and potential investors will be afraid to take risks that would run afoul of the law in the event of legal uncertainty. Lack of confidence in values is also keeping investors on the sidelines. 

As a result, other countries create policies that make their territories more conducive to this budding asset class will eventually win the race in attracting budding investors. 

By utilizing fractionalization of real estate, operational procedures may be substantially improved to allow innovative financial solutions, working together with relevant legal and regulatory standards, instead of avoiding or evading them. 

1. Benefits of Regulating Tokenization 

i) Increase Adoption Among Institutional and Retail Investors 

There's still a long way to go before mainstream adoption becomes a reality. Regulating the crypto market in a way that safeguards regular investors may attract more both institutional and retail investors to try it out. 

It's impossible for potential investors and property owners to know whether they're in safe waters without clear restrictions, which is a major hindrance to fractionalization's development in the future. 

ii) Greater Protection Towards Investors

Market manipulation and insider trading are common, and there are few regulations in place to stop them. In addition, many investors fail to take into account the potential dangers that lurk in plain sight. How confident are you, for example, that your money will be safe if you invest your hard-earned money into an unregulated investment? There is a risk that the platform may go bankrupt or be compromised. Regulators may one day have to deal with these issues. 

2. Countries that Are Regulating Real Estate Tokenization

When it comes to regulating tokenized securities, regulators around the globe are already taking positive steps to usher in the next era of financial technology. This can be seen from regulatory regimes throughout the globe starting to embrace and build frameworks for their regulation. 

Tokenization of real-world assets is often covered by current available securities laws and regulations in most of the countries around the globe since most adopt a technology-neutral approach. 

i) United States

United States is unquestionably a key participant in blockchain technology and tokenization, backed by the world's most heavy-handed regulator, i.e. the Securities and Exchange Commission, and a battle-tested regulatory framework for securities that includes a vast body of case law. Systems like RealT allow for the tokenization of U.S. real estate holdings while keeping all of the legal rights and protections that are provided by conventional ownership of real estate in the country. 

The United States, which is home to the world's biggest hedge fund investor base, has the largest institutional investor funds. The country's early adoption of cutting-edge technology has earned it a place at the front of the tokenized solutions pack. 

Also, Delaware and Wyoming stand up as financial havens. A legal framework for digital assets has yet to be established in Delaware, despite the fact that Delaware is well-known for its low corporate tax climate. 

Over a dozen blockchain-friendly regulations have been introduced in Wyoming since March 2019 to ease transactions using digital assets. 

ii) Switzerland

Switzerland is a logical location for blockchain startups because of the country's long history of financial safety, its stringent privacy regulations, and the country's pragmatic authorities. It has been able to enact various business-friendly legislation and amendments that establish clear guidelines for technological growth, with over 900 projects and the world's 'cryptocurrency centre'. 

Tokenestate (a self-issue security token), Mt Pelerin, and SwissRealCoin are a few well-known tokenization initiatives (Real estate security token). However, the SIX Digital Exchange (SDX), a fully integrated issuance, trading, settlement, and custody infrastructure for digital assets regulated by FINMA, is the country's 

major attraction. 

The nation may become a centre for tokenized security in the next years due to its history of successful cryptocurrency initiatives. Ethereum and Tezos, two of the most promising financial service token projects, may make use of this characteristic even further. Both are decentralized blockchains that allow for the creation of public apps and smart contracts, as well as enabling the most efficient implementation of any decentralization concept. 

iii) Singapore

To execute fractionalization, there is no special regulatory framework in Singapore that applies to security tokens. In general, security tokens are subject to the same regulations as regular securities. Singapore's regulatory framework is technology-independent in this regard. 

There are three kinds of digital tokens recognized by the Monetary Authority of Singapore (MAS), and the MAS has issued guidelines on digital token offers. Therefore, if digital tokens are classified as "capital markets goods" under the applicable regulations, they may be subject to regulation by the MAS. With that said, it is safe to say that Singapore is ever ready to embrace new blockchain technology which will drive their economy, particularly in respect of the real estate market. 

3. Closer Home in Finnax

Singapore's laws will govern the Finnax ecosystem. Participants of Finnax ecosystem will also be governed by the laws of Singapore, the laws of their own country, and any other relevant legislation.

With it being regulated, Finnax is among the first property fractionalization platform across the region to promote fractional ownership of real estate in a regulated context. That said, Finnax potentially disrupts real estate investment paradigms for asset owners and investors now that it is being governed by relevant regulations. 

Conclusion

New markets will embrace the potential and regulations associated with blockchain as tokenization services continue to proliferate. Having a head start in the tokenization sector will pay dividends for certain governments and countries, including the ones listed above. 

As an industry pioneer in the Southeast Asia region, Finnax is providing an end-to-end platform that leverages on blockchain technology through real estate fractionalization to unlock liquidity for real-world assets like real estate. Feel free to get in contact with Finnax if you'd like to.

Visuals courtesy of PIXABAY & UNSPLASH