Fractional shares have been around for a while, now fractional real estate has arrived, powered by the technology of the blockchain.
Stellenbosch-based Realsmart recently listed eight units for fractional sale, starting at 70 ‘Realsmart tokens’ or RSTs – where one RST is equivalent to $1. That means you can acquire a piece of prime real estate for the equivalent of $70 (about R1 000).
The units form part of the award-winning Pearl Valley Hotel in Paarl in the Western Cape, which includes a Jack Nicklaus Signature Golf Course, and the L’Huguenot Wine Cellar. The total value of the eight units up for fractional ownership is listed at $1.38 million (R19.3 million).
Ownership gives you an expected income yield of 4% a year, with capital growth expected to average around 5% a year, or a five-year total return of 11.2% a year.
Realsmart’s chief technology officer Bruce Martin says the company had the vision of making real estate ownership universally available. Using the Ethereum blockchain, it was able to solve the problem of breaking up a single property into thousands of investible bits.
The title deed is loaded onto the blockchain and can be inspected online, and while it represents ownership of a single property, the income derived from the property can be shared among multiple owners.
An innovative feature of the Pearl Valley Hotel fractional ownership concept is that eight units have been separated off from the rest of the hotel for fractional ownership, while management remains in the hands of international management group, Mantis Hotel Collection.
For a minimum of 6 667 RST ($6 667 or about R93 000) you get user rights thrown in as well: one night per year for as long as you own the minimum amount of tokens.
“Real estate investment has created the most millionaires in the world, but the barriers to entry have traditionally been very high,” says Anton Breytenbach, co-founder and CEO of Realsmart.
“I first had the dream to make real estate investment accessible to everyone back in 2010, but now, finally, blockchain technology allows it.”
You can buy and sell Realsmart tokens on a decentralised exchange (these are marketplaces connecting buyers and sellers without an intermediary).
Says Martin: “For the first time in history, investors can own a piece of some of the prime real estate in the world, and they can purchase and sell Realsmart Tokens just as they would shares on a stock market. If you decide you do not want to continue owning the property, there will be a market for those tokens.”
How to invest
There are a number of ways to participate. Either buy the RST tokens with a debit or credit card, or pay with crypto from an existing crypto wallet, such as with Luno, VALR or AltCoinTrader. You need to open a Realsmart ‘wallet’ and fund it by connecting your existing crypto wallet to Realsmart.
Once the wallet is funded, fractional ownership deals are displayed at the Realsmart marketplace.
Currently, only the eight units at the Pearl Valley Hotel are up for sale, but Realsmart has upcoming deals where properties in Mauritius, the United States and elsewhere are displayed. Once you have identified the property you would like to acquire, the Realsmart tokens are converted into another form of token called a security token, which gives the holder direct ownership to the property and the subsequent rental income it provides.
The ability to own office and residential units abroad is an interesting outcome of this use of blockchain technology.
It remains to be seen how the South African Reserve Bank treats ownership of foreign properties, though as things stand, there is no regulation governing this means of fractional property ownership.
Apart from earning capital and income on their properties, with rental income paid daily or in advance, investors can reinvest, cash out, or exchange their security tokens on a security token marketplace or decentralised exchange.
A word of caution: liquidity in these fractional ownership tokens is likely to be thin in the early stages, so it might be better to be prepared for a longer haul if you decide to go this route.
This is not the first time this has been done in the world, but it is reckoned to be a first for SA using blockchain (Easy Equities offers fractional ownership, but not using blockchain).
In 2019, blockchain company Consensys teamed up with French real estate fund management company Mata Capital to offer fractional real estate ownership. The project involved the issue of security tokens for three separate funds worth a combined total of €350 million (R5.9 billion). The first of these tokenisation projects entailed ownership of a planned 11-story hotel currently under construction on the outskirts of Paris. The resulting €26 million (R439 million) issuance is the among the largest real estate tokenisation projects in Europe.
A revolution in real estate ownership
Monica Singer, Africa lead for Consensys, says a revolution in real estate ownership is underway. The ability to own real estate in fractions allows people of limited means to acquire property as an investment without all the associated costs, such as lawyers’ and transfer fees.
“These tokens can be used to get loans in decentralised exchanges like AAVE where they can be used as collateral to get loans in fiat or crypto,” says Singer. “The thinking is that in future you will use an illiquid asset like real estate to get a liquid asset like crypto.”
Listen to Ciaran Ryan’s interview with Monica Singer of ConsenSys: