Blockchain tokenization in real estate : a study of the implementation of real estate security tokens in Hong Kong

Abstract

As one of the biggest financial markets in the world, real estate assets provide a lucrative investment that offers a steady source of recurring income. Yet, one major disadvantage of real estate assets is poor liquidity, which is resulted from high capital and transaction barriers. As an attempt to increase the liquidity of the real estate market, blockchain-based security tokens were created to lower the capital requirements and streamline the transaction processes. These real estate tokens are a digital representation of ownership of a real estate asset, which enables the fractionalization of properties using blockchain technology and Ethereum smart contracts. While many existing academic journals focus on the global implementation of security tokens, this study investigates the feasibility of implementing real estate security tokens in Hong Kong alone. A comprehensive review of the theoretical benefits and disadvantages was first conducted. The theoretical benefits were then cross-analysed by comparing the performance of the security token secondary market with other financial markets. Interviews with key stakeholders were also conducted at the same time. It was found that many of the theoretical advantages such as enhancing liquidity, low barrier entry and crowdfunding capability are severely limited due to the lack of incentives for property owners, strict legal regulations and poor market conditions in Hong Kong. The study concludes that while blockchain technology and real estate tokens have shown promising potential, the real estate token market will need to go through more regulatory changes, and it will also require the success of other types of security tokens for real estate tokens to be adopted by major players in Hong Kong. As the security token market is still in very early stages of development, it is hoped that this study can provide a preliminary framework for further studies on other types of security tokens, such as real estate tokenised funds and ESG tokens.