Digitizing the real estate sector in the UAE

Technological innovations in digital assets, blockchain, and NFTs are expected to transform the real estate assets in the MENA region making them more liquid, digital, and accessible for people who are unable to access them due to high capital costs, complicated transaction processes, and restricted deals.

According to GB Invest February 2022 edition, the global real estate industry is over $228 trillion in size and increasing, making it the most significant investable asset. However, most people are unable to access it due to high capital costs, complicated transaction processes, and restricted deals.

The technological innovations in digital assets, blockchain, and NFTs will digitize the real estate asset class, making the investment experience accessible, liquid, and 100% digital. In the future, with the liberation of regulatory policies in the MENA region, especially the UAE, more doors are being opened for the masses. For example, real estate crowdfunding has opened the door for the average person to participate in fractional ownership of residential properties for as little as Dhs500.

The rapid adoption of digital assets has been hurtling forward at speed to disrupt many traditional industries. The sector is now ripe for innovation and disruption, where it can revolutionize itself with the appropriate regulatory policies on digital assets for real estate from regional regulators. As a result, representing an interest in fractional ownership of a real estate asset with a blockchain-based token can immensely benefit the industry and end-users.

New business models can be enabled by the increasing maturity of digital assets, decentralized autonomous organizations (DAOs), and decentralized finance (DeFi) services. Digital assets and blockchain technology will enable a more transparent operation, allowing tamper-proof recording of ownership shares, which cannot be altered after issuance.

In addition, it will enable accurate secondary trading where peer-to-peer buying/selling can flourish, making it possible to provide the ability to buy and sell ownership shares via the platform. This transaction of asset transfer is also stamped on the blockchain.

Achieving immediate liquidity of real estate assets by utilizing the principles of DeFi can enable sophisticated investors and digital asset holders to gain access to real estate investing. Many digital asset-enabled real estate products can be created in the future such as:

• Collateralized borrowing: With this, an investor can stake their property and special purpose vehicle (SPV) ownership shares to borrow digital platform assets from the DAOs.
• Tokenizing funds for sophisticated investors: Existing funds are likely to be regulated through existing policies. NFTs/tokenization can be a way to produce cost savings for funds and provide access to a broader investor base.

Other potential products include, but are not limited to, security tokens for single assets, utility and hybrid tokens for fractionalized private residential, and debt securitization, that is blockchain-based smart contracts to lower the administration costs of servicing debt.

Due to the UAE’s unique position, where an attractive real estate market exists, and the financial services industry is constantly innovating with an increasing appetite for safe digital assets, cryptocurrency-enabled business models are expected to flourish.

If multiple players and other key stakeholders can continue to work together, an innovative industry can be created, one that is a global leader – built on the core foundation of technology and regulatory innovation.

Meanwhile, the UAE is formulating a licensing regime for virtual asset service providers to formalize the crypto economy and become a global industry hub.

The country’s federal securities regulator, the Securities and Commodities Authority (SCA), is reportedly in the final stages of developing a licensing framework that would let VASPs like crypto exchanges set up shop in the country, the government official said.