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Fractional ownership, Tokenisation and Blockchain technology, briefly.

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According to Wikipedia.org (click to read in full), “Fractional ownership” is defined as a method in which several unrelated parties can share in, and mitigate the risk of, ownership of a high-value tangible asset, usually a jet, yacht or piece of resort real estate. It can be done for strictly monetary reasons, but typically there is some amount of personal access involved. One of the main motivators for a fractional purchase is the ability to share the costs of maintaining an asset that will not be used full-time by one owner.

Briefly, what this tells us about fractional ownership is that we may be buying something expensive or too expensive which we could not afford to buy it by ourselves. When it comes to a property for own-stay for example, it could mean we purchase a 5-bedroom home on a joint-basis, say with 4 other people and each one of us occupied one of those bedrooms while we share the toilet(s), living room, kitchen and even balcony if any. Perhaps the person paying the most will occupy the master-bedroom and gets his / her own shower room for example. Everything will be clearly spelt out in the Sales and Purchase agreement and perhaps the remedies too.

I think at this moment however, most of these fractional ownership purchases would be more for investment purpose instead of own-stay. So, instead of a RM500,000 condo of 1,000 sq ft being purchased by one buyer, maybe 20 owners buy 50 sq ft each at RM25,000 per person. I believe they could still get a loan for it. What happens next is that if the rental is RM3,000 per month, then every one gets their share of RM150 each per month. In a year, each will get RM1,800. Based on the initial investment of RM25,000 they are getting a ROI of 7.2% which is good! By the way, all these figures are plucked from the sky for illustration purpose. If anyone has such a project with such a return, do write in to kopiandproperty@gmail.com yeah.

A much easier way for fractional ownership (investment) may be to tokenise what is being sold. For example, a RM500,000 home may be tokenised into 500,000 digital tokens each with a par value of RM1. Investors could then buy and sell their tokens based on how much they could afford. What is lacking for this to happen would be the regulatory framework yeah and this is not yet doable in Malaysia due to the lack of an ecosystem. In most countries around the world, tokenisation has yet to take off widely. The underlying technology facilitating this would be blockchain and thus far, this is usually associated with some coin offerings including the most famous one, Bitcoin.

Image is courtesy of Stock Photos from elena bsl

There are definitely advantages with block chain. They include the fact that it’s decentralised, thus it’s much harder to hack for example. It is said to promote trust and transparency. Basically blockchain allows two parties who does not know / trust one another to make a transaction without the need for a financial institution for example. According to many articles, blockchain is immutable and this meant that the data does not get manipulated, replaced or falsified in any way, shape or form. A quick reading on blockchain,please click here. As for the question of how fast could we expect tokenisation of property investment, I think we should look at how soon will countries accept blockchain technology. This has to be supported by legislation too. Happy following.

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<Featured Image is courtesy of Stock Photos from zapp2photo>

written on 15 April 2019

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