Exploring real estate asset tokenization in the UK
The future vision for real estate is for assets to become more available, increasingly liquid, and easier to manage and document. The emergence of PropTech as a field of focus over the last 10 years has shifted the industry’s mindset of how technology can create new opportunities for revenue, efficiency, and cost-savings.
Blockchain technology has great potential to catalyze the real estate industry. It will:
Increase agility in the fractionalized ownership of assets with decreased management costs and heightened efficiency
Facilitate asset management and trading
Access wider investor markets with global distribution
Increase accessibility to prime investments by reducing minimum investment ticket sizes
Improve the transparent management of records and data
Created in 1862, Her Majesty’s Land Registry (HMLR) records the ownership of land and property in England and Wales. These lands and properties are valued at over GBP7 trillion and encompass over 25 million ownership titles.
HMLR aims to be the world’s leading land registry for speed, simplicity, and an open approach to data. HMLR’s R&D and innovation project, Digital Street, set up an investigation into the relevance of blockchain solutions for real estate, due to its belief that in the future, citizens will want to be able to request a digital token representing their property ownership. In Q1 2019, HMLR embarked on a series of engagements with representatives from across the sector, including experts in tokenization and digital assets, to explore the potential this technology presents for the UK’s real estate market.
What are the opportunities offered by blockchain technology for real estate asset tokenization in the UK?
How will innovations such as fractional ownership and blockchain-powered property marketplaces change the dynamic of UK real estate?
How do these technological advancements impact the role of central institutions such as HMLR?
How should HMLR work with blockchain and industry stakeholders to make the most of these opportunities?
In line with its goal to be the world’s leading land registry, HMLR via Digital Street engaged ConsenSys’ commerce and finance arm, ConsenSys Codefi, to explore innovative products and services enabled by blockchain technology.
THE CODEFI SOLUTION
Codefi and HMLR engaged in an initial workshop to plan and design the product prototype and discuss technical requirements for real asset tokenization.
HMLR created a prototype “Title Token” for a specific property, which was transferred to the Codefi blockchain-powered digital asset marketplace. In this marketplace, a security token, representing equity shares, was created for this asset and linked to the Title Token.
HMLR’s Title Token together with Codefi’s security token issuance platform and digital asset marketplace demonstrated new capabilities in real estate asset management:
Property owners are able to request Title Tokens that represent their real-world asset ownership. HMLR can then require property owners to login with their MetaMask accounts and verify their identities before transferring the Title Token to the user’s appointed wallet. The Title Token includes the same data found on traditional title deeds of ownership.
Property owners are able to create a security token linked to their Title Token on Codefi Assets. This enables property owners to decide the fractionalization, structure, offering amount, market cap, and token price of their asset. Upon finalizing these specifications, property owners are able to launch, manage, and trade their security token on Codefi’s digital marketplace.
Investors are able to log in to Codefi’s digital asset marketplace, manage their property portfolios, view available security token offerings, access HMLR-sourced asset data, and engage in asset trading.
Regulators can be granted access to view high-level token data, real-time capitalization table status, and all ongoing on-chain activities including which shares are minted, and when trades take place.
A platform to create, issue, and manage the lifecycle of digital assets, associated markets, and digital financial instruments on public or permissioned blockchain networks
Codefi’s solution to HMLR’s investigation was provided within a three week timeframe, with minimal custom development. Codefi enabled HMLR to quickly and easily start leveraging blockchain technology.
Codefi’s demonstration of the capabilities of asset tokenization proved the following:
HMLR can create Title Tokens on the Ethereum public blockchain that can be linked to real-world assets
Fractional tokens can be created to represent beneficial interest ownership in an asset
Fractional tokens can be issued to subscribers by Codefi Assets
Fractional tokens can be exchanged on the Codefi marketplace
Marketplace transactions successfully adhere to compliance requirements and include a full audit
HMLR is utilizing these results to continue exploring the potential of blockchain technology in the UK real estate industry. The opportunities moving forward all transfer around the central theme of creating a more transparent and more efficient real estate industry. HM Land Registry will be continuing to work with representatives from the market to fully understand the potential of this technology before any further decisions are made. As more pilots, proof of concepts, and full-fledged solutions are developed they will enable innovative organizations to provide greater benefits to their stakeholders whether they be investors, consumers, property owners, or national citizens.