Crypto for real estate

WE believe, in time, all real estate assets will reside on the blockchain - this is the grand vision of real estate entrepreneurs Julian Kwan and Alice Chen. The married couple - who co-founded Singapore-based real estate crowdfunding platform InvestaCrowd - has created a new product: RealFuel, a blockchain-based utility token for real estate investing.

Their idea is that today, investors can only put their money in real estate through direct property purchase, buying equity shares of real estate companies, or Reits (real estate invesment trusts) - which usually require a huge capital outlay or high cost paid to intermediaries. Blockchain technology, however, could give investors more direct access to real estate at a lower investment cost with significantly higher efficiency and liquidity.

Disrupted speaks to the duo to uncover the RealFuel story.

What is RealFuel?

RealFuel is a platform that enables the RealFuel token to be used as a utility or payment token on various real estate platforms. Utility tokens are essentially cryptocurrencies that are used as a medium of exchange or to provide digital access to an application or service.

What inspired RealFuel?

There has been little to no innovation in real estate investing since the 1960s when Reits were first introduced. While publicly listed Reits provide some liquidity, they are expensive to set up and typically hold a basket of properties rather than a single building. To boot, Reits are typically buy-and-hold vehicles, so many investors are shut out of development projects entirely unless they can meet high minimums. With the belief that all real estate investments will migrate to being executed online, we started InvestaCrowd in 2015. It has a Capital Markets Services (CMS) licence from the Monetary Authority of Singapore (MAS) - and allows members to invest in private mid-market real estate investment projects with a much smaller minimum investment quantum.

Some 18 months ago, we felt the need to solve the next biggest problem in real estate investing: liquidity. So ReaFuel was born.

What problems does RealFuel solve?

Liquidity: Every deal we've done in real estate suffers the same problem which is illiquidity, where you invest once at the start of a project and have to wait many years to receive your principal and returns.

Access: Wealth generated from real estate is in the hands of the few. If you are not experienced or don't have considerable available funds, you are effectively priced out of real estate in developed markets.

Red tape: Real estate investing typically entails a long transaction time, complex administrative layers, high management costs and middlemen who charge unnecessary fees.

What is RealFuel's solution?

Blockchain allows for the democratisation of real estate, enabling those who have historically not had access to now be able to make smaller fractional investments in properties. Blockchain-based tokens offer a new system for recording transactions in a transparent, unchanging manner. Importantly, these tokens can now be transferred between parties instantaneously in a secure environment. The ICTX real estate token exchange we are building will allow the trading of private real estate assets using RealFuel as the native currency.

What's an application of RealFuel?

RealFuel's first use case is with InvestaCrowd. In InvestaCrowd 1.0, we use paper contracts, take weeks to close a deal and have to use banks, escrow and other intermediaries for settlement. Additionally, there is no liquidity.

In InvestaCrowd 2.0, we envision to not use paper contracts, or have to make bank payments or use an escrow. This will allow us to take seconds to close a deal, and facilitate liquidity. InvestaCrowd 2.0 needs RealFuel to implement blockchain solutions into the real estate investing process and completely redesign the current system.

How will this have applications for real estate and more?

The idea of tokenised real estate in theory is simple. Tokenisation is the issuing of shareholdings in real estate in tokens, which are a digital representation of the current paper form. If we have the right blockchain-based infrastructure in place, owners of these tokens can trade them with other investors on the blockchain with an immutable, irreversible record of those transactions and transfer value.

The liquidity value proposition is the greatest value proposition to real estate investing since Reits were introduced.

Publicly-traded Reits are great: they offer liquidity and the option to buy and sell on a daily basis. But due to the high costs needed to set up and manage them (often called a liquidity premium), and the many restrictions on how and what a Reit can invest into, investors are typically offered a much lower return compared to private real estate investments. Also, investors typically cannot invest into a single asset (or a development project), but only a basket of assets or buildings.

What does that mean? It means that less than 0.5 per cent - that's less than half of 1 per cent of commercial real estate in developed markets - that is publicly listed is actually liquid and tradeable. The coin-talking big picture, on the other hand, offers a market that is effectively 200 times larger, and comprised of similar quality assets that are prime targets for the new world of tokenised assets.

The value proposition to investors of tokenised real estate is the ability to invest directly in high-quality assets in smaller fractions; target asset type, location and return metrics; trade 24/7; remove the need for storing files; and provide liquidity in what has been traditionally an illiquid asset class - and doing it all from your mobile phone.