SINGAPORE – For full-time private investor Wong Yong Kai, an opportunity to invest in a landed property with a starting sum of just $20,000 was too tempting to ignore.
Mr Wong, who is in his late 30s, decided to commit $100,000 to a redevelopment project led by FRX Capital to transform a bungalow in Haig Road into a trio of terrace houses. He invested in the project in 2020 via digital tokens offered by online real-estate investment platform Fraxtor, which shares the same founders as FRX Capital.
Fraxtor uses blockchain technology to create tokens to secure the investor’s economic rights to the underlying property, and sells the tokens to raise funds for the project.
Mr Wong told The Straits Times that after doing his research, he found the net projected return on investment of 12 per cent per annum over a three-year holding period a worthy investment.
By 2023, he had recouped his principal amount and garnered a net return on investment of 20 per cent per annum. The higher return was due to an increase in the project’s gross floor area, coupled with its sale at a premium price in a thriving property market.
Mr Wong, who owns a Housing Board flat, is currently investing in four more projects with Fraxtor.
Investing via digital tokens lowers the barriers of entry with its smaller-sized capital investments, versus direct real-estate investments which traditionally require an initial outlay of hundreds of thousands of dollars.
Currently, in Singapore, some real-estate tokens are considered as security tokens and regulated under the Securities and Futures Act. Firms offering such security tokens need a Capital Markets Services (CMS) licence from the Monetary Authority of Singapore (MAS).
Fraxtor, which has a CMS licence, can market its tokens only to institutional investors and accredited investors here. It would need to meet tighter regulations if it decides to market its products to retail investors, said its chief investment officer Samuel Lee.
Professor Sing Tien Foo said as tokenisation of real estate is still in an infancy stage in Singapore, it will only give property investors a new investment avenue.
Tokenisation will not be a substitute for the real-estate investment trust (Reit) market, said Prof Sing, provost’s chair professor in the department of real estate at the National University of Singapore Business School.
A Reit is a company that owns and operates a portfolio of properties, with the aim of generating rental income and driving asset appreciation in the longer term. The rental income is redistributed to investors in the form of dividends.
While PropNex chief executive Ismail Gafoor acknowledged that real-estate tokenisation has benefits, including “lower barriers to entry, lower transaction cost and higher liquidity”, he does not think such an alternative investment would interest everyone.
“Some investors may still prefer to buy physical properties directly and have exclusive ownership rights; they may want to take advantage of real-estate leveraging to build wealth or perhaps leave the property to future generations.
“In addition, there are potential risks involved. A cryptocurrency crash could hurt the value of real estate-backed tokens,” he said.
Legal experts noted that depending on the token’s specifics, holders may or may not acquire ownership rights over the property.
Mr Benjamin Tay, deputy head of corporate real estate at law firm Rajah & Tann Singapore, said it would be challenging to structure a token to grant direct proprietary rights to a property here, due to registration requirements for the transfer of many real-estate interests.
Given this, most proposed rights granted under tokens are contractual in nature, meaning that what is tokenised is not direct real estate, he added.
Mr Larry Lim, one of the law firm’s partners and deputy head of its financial institutions group, said investors should note that ownership or acquisition of interests in a property overseas may be subject to the laws in the foreign jurisdiction, which may preclude foreign ownership. Mr Lin Yuankai, a partner of RPC Premier Law, noted that real-estate token issuers here need a CMS licence from MAS.
Such token investment services can be offered only to institutional investors and accredited investors who have more than $2 million in net personal assets or more than $300,000 of income in the past 12 months. It could also be a corporation with net assets exceeding $10 million in value, said Mr Lin.
Apart from Fraxtor, Kasa and RealVantage are among the real-estate token issuers with CMS licences from MAS. Kasa, a real-estate securities trading platform incorporated in 2018, started with providing digitalised asset-backed securities in South Korea. It set up an office here and obtained a CMS licence and a Recognised Market Operator licence from MAS in 2021.
RealVantage – which obtained its CMS licence last year – has funded 23 deals across Britain, Australia, the US and Singapore since 2019.
In a 2020 report, KPMG said real-estate tokenisation has gained traction globally as more traditional real-estate institutions partner technology providers to explore tokenising debt or equity.
Mr Lee of Fraxtor said its members in Singapore have grown by 80 per cent to nearly 300, including family offices.
Since 2019, it has raised more than $60 million from digital tokens across 20 projects, he added.
It earns a commission from developers or fund managers, which is usually about 2 per cent of the funds raised.
Mr Lee said projects offered by Fraxtor “typically target an attractive risk-return profile”. He cited the Haig Road project, which achieved a net return on investment of 20 per cent per annum.
He added that Fraxtor aims to facilitate token trading among its members after it sets up operations in Australia next year.
Ms Caroline Leong, who owns and operates family entertainment centres, has bought more than $250,000 worth of tokens from Fraxtor.
She said they appealed to her as she found the traditional barrier to entry to real estate too high and risky. However, she plans to cap her investment at $300,000 as tokens are not as liquid as equities.
