Global Property Tokenization RAK DAO’s System for International Real Estate Investment
Published Date: 26th Oct, 2024
with Innovative Ownership and Trading Models
By Dr. Pooyan Ghamari, Swiss Economist and Visionary
Property tokenization is revolutionizing global real estate investment by enabling fractional ownership through blockchain technology. By dividing real estate assets into digital tokens, investors can purchase fractional shares of properties, gaining access to high-value markets without the need for substantial capital. Initially pioneered in Dubai, this approach has vast potential for global applications, allowing properties across different countries to be tokenized and traded seamlessly.
RAK DAO, a blockchain-based decentralized autonomous organization (DAO), provides a robust platform for tokenizing properties worldwide. This article explores how RAK DAO’s property tokenization system can be adapted to international real estate markets, the role of Special Purpose Vehicles (SPVs) and holding companies in restricted ownership areas, and the potential for trading security tokens with utility features. We will also outline effective strategies for marketing and selling these tokens to a global audience.
The Power of Property Tokenization
Property tokenization is the process of converting ownership rights in a physical property into digital tokens on a blockchain. Each token represents a fractional share of the property, allowing multiple investors to own small portions of high-value real estate. Tokenized real estate can be traded on secondary markets, providing liquidity and greater access to global real estate markets. Investors benefit from owning a fraction of a property without having to purchase or manage the entire asset.
Key Benefits of Global Property Tokenization:
• Fractional Ownership: Investors can buy small shares of high-value properties, enabling participation in lucrative real estate markets without significant capital requirements.
• Increased Liquidity: Tokenized properties can be traded on secondary markets, providing liquidity in what is traditionally an illiquid asset class.
• Lower Barriers to Entry: Tokenization reduces the minimum investment required, allowing smaller investors to participate in high-value real estate projects worldwide.
• Global Diversification: Investors can own tokens representing fractional ownership in properties across multiple countries, reducing exposure to local market risks and increasing portfolio diversification.
• Automated Governance: Smart contracts automate property management processes such as income distribution, voting, and compliance, ensuring transparency and efficiency.
Expanding RAK DAO’s Tokenization System to Global Markets
RAK DAO’s platform can be applied to real estate projects in any country, making it possible to tokenize and trade properties globally. By adapting to local regulations and establishing Special Purpose Vehicles (SPVs) and holding companies, RAK DAO ensures compliance with local laws while opening new opportunities for investors to participate in international real estate markets.
Key Features of RAK DAO for Global Tokenization:
1. Smart Contract Automation: RAK DAO automates the entire tokenization process using smart contracts. These contracts manage the issuance of tokens, revenue distribution, governance, and trading, ensuring secure and transparent transactions for all parties.
2. Decentralized Governance: Token holders participate in the decentralized governance of the property, voting on important decisions such as whether to lease, sell, or renovate the property. This system ensures that every token holder has a voice in managing the property, regardless of where they are located.
3. Tokenization of Real Estate Assets: RAK DAO enables the creation of tokens that represent fractional ownership in international real estate. These tokens can be traded on secondary markets, giving investors flexibility and property owners liquidity.
4. Compliance with Local Regulations: RAK DAO ensures compliance with local real estate laws through the use of SPVs or holding companies. This structure allows the property to be legally owned by the SPV, which in turn issues tokens representing ownership, while respecting ownership restrictions in different countries.
Addressing Restricted Areas: The Role of Holding Companies and SPVs
In certain countries or regions, foreign investors may face restrictions on direct ownership of real estate. To overcome these challenges, RAK DAO offers a solution by creating a holding company that holds the property. The SPV becomes the full shareholder of the holding company, which allows investors to own tokens representing shares in the SPV, without directly owning the restricted property.
Key Steps to Structuring Ownership in Restricted Areas:
1. Establish a Holding Company: The first step in tokenizing a property in a restricted area is to create a holding company in a jurisdiction that allows it to own real estate. This holding company will legally own the property.
2. Create an SPV: The SPV is set up as the shareholder of the holding company. The SPV owns 100% of the holding company’s shares, making it the indirect owner of the property. Investors purchase tokens representing fractional shares in the SPV, giving them indirect ownership of the property without violating local ownership laws.
3. Token Issuance: The SPV issues digital tokens representing shares in the holding company, allowing investors to own fractional shares in the property through their ownership of the SPV. This structure ensures compliance with local restrictions on foreign ownership while providing investors with access to tokenized real estate.
4. Legal Compliance: By creating an SPV and a holding company, RAK DAO ensures that the property is legally compliant with local laws, including foreign ownership restrictions, taxation, and property management regulations. Token holders benefit from legal enforceability of their rights without directly owning the property.
Security Tokens and Utility Tokens: Connecting Ownership to Utility
An exciting development in property tokenization is the integration of security tokens with utility tokens, enabling investors to trade ownership while also accessing utility benefits. This hybrid model enhances the value of tokens, making them more attractive to a broader range of investors.
What are Security Tokens?
Security tokens represent fractional ownership in an asset, such as real estate. These tokens are treated as securities under financial regulations and give investors certain rights, such as voting and revenue distribution. Security tokens provide legal ownership of the property through the SPV or holding company.
What are Utility Tokens?
Utility tokens, on the other hand, provide holders with specific functionalities or benefits related to the asset, but they do not represent ownership. In the context of real estate, utility tokens could be used to grant holders access to certain services, privileges, or rewards associated with the property, such as discounted rentals, access to property amenities, or voting on additional community features.
Integrating Security and Utility Tokens for Property Tokenization:
1. Ownership through Security Tokens: Investors hold security tokens that represent fractional ownership in the property. These tokens are legally compliant with securities regulations and provide rights to revenue, governance, and asset appreciation.
2. Utility Tokens for Added Value: Alongside security tokens, utility tokens can be issued to provide additional benefits to investors. For example, holders of utility tokens could receive access to exclusive events hosted at the property, discounts on leasing or property services, or even priority voting rights on property management decisions.
3. Trading Security Tokens and Utility Tokens: Both security and utility tokens can be traded on regulated exchanges, with the security tokens representing ownership and the utility tokens offering practical or experiential benefits. This allows for greater liquidity and a more dynamic investment experience. Investors who hold both types of tokens gain ownership and enjoy the use of property-related benefits.
4. Compliance and Regulation: Security tokens must comply with local securities laws, while utility tokens are often subject to fewer regulations. RAK DAO ensures that both token types are legally structured and comply with the necessary regulations in each jurisdiction, offering investors a safe and compliant way to invest and benefit from real estate.
Step-by-Step Guide to Tokenizing International Properties with RAK DAO
1. Create a Special Purpose Vehicle (SPV) in the Target Country
• The SPV acts as the legal entity that owns the property, ensuring compliance with local real estate laws.
• In restricted areas, an SPV can own shares in a holding company, which directly holds the property. This structure provides indirect ownership for foreign investors, avoiding legal restrictions on foreign ownership.
2. Tokenize the Property via RAK DAO
• The SPV issues security tokens that represent fractional ownership in the property or holding company.
• Investors buy these tokens, gaining ownership rights, including a share of the rental income and governance rights in the property.
3. Utility Tokens for Added Benefits
• In addition to security tokens, utility tokens can be issued to provide holders with access to property-related benefits, such as discounted rent, access to facilities, or event invitations.
4. Trading Security and Utility Tokens
• Both types of tokens can be traded on secondary markets, providing liquidity for investors. Security tokens represent ownership, while utility tokens provide additional functional benefits, creating a more attractive investment.
5. Ensure Compliance with Local Laws and Regulations
• The SPV must comply with local laws regarding property ownership, taxation, and foreign ownership restrictions. RAK DAO ensures that all legal requirements are met, and that token holders have enforceable rights.
Marketing and Selling Tokenized Real Estate to a Global Audience
To successfully market and sell tokenized real estate to a global audience, it is essential to use the right platforms and strategies. Below are some effective approaches:
1. Create a Clear Value Proposition
• Emphasize the benefits of fractional ownership, liquidity, and global diversification.
• Highlight how security tokens provide legal ownership while utility tokens offer added value and experiences related to the property.
2. Use Security Token Offering (STO) Platforms
• Platforms like Polymath, Securitize, and Tokeny offer regulated environments for raising funds through the sale of security tokens. These platforms provide access to institutional and accredited investors.
3. Leverage Crowdfunding and Real Estate Tokenization Platforms
• Platforms like RealT and Propy allow businesses to raise funds from a broad range of retail and institutional investors through real estate tokenization.
4. Engage Investors Through Digital Marketing
• Use social media campaigns, content marketing, SEO, and email campaigns to reach a global audience of investors interested in real estate tokenization.
• Highlight the compliance, legal structure, and benefits of tokenized real estate.
5. Partner with Real Estate Brokers and Institutional Investors
• Collaborate with brokers and institutional investors to attract large-scale investors and gain access to a broader network of potential buyers.
Unlocking Global Real Estate Investment Opportunities with RAK DAO
RAK DAO offers an innovative, secure, and compliant platform for tokenizing real estate across different countries, allowing investors to access global markets while ensuring legal compliance. By structuring ownership through Special Purpose Vehicles (SPVs) and holding companies, even properties in restricted areas can be tokenized, offering fractional ownership to a global audience.
The integration of security tokens with utility tokens adds even more value to the investment, allowing token holders to benefit from both ownership rights and property-related privileges. This hybrid model enhances the appeal of tokenized real estate, making it more attractive to a wide range of investors.
With effective marketing strategies and the right digital platforms, businesses can successfully sell tokenized real estate to a global audience, unlocking new investment opportunities in the future of real estate.
Written by Dr. Pooyan Ghamari, Swiss Economist and Visionary
Date: 26th Oct, 2024
