An equity stake in a single student housing scheme in North Carolina, USA, was recently described as being ‘tokenised.’ A stake was offered up to individual investors at a minimum buy in of $21,000.
Property lawyers often get told off for using arcane phrases. But when it comes to blockchain and real estate, the tech industry is just as guilty.
Investors therefore have to trust that their lawyers understand what a tokenised stake is, why they wouldn’t want to encounter the Byzantine Generals’ Problem halfway through the Ethereum stream, and what questions this would raise about their cryptographic hash.
More instantly understandable is the need for industry regulation and standards. If the blockchain trend catches on, investors need to be sure that all legal issues have been checked and resolved to a universally-agreed degree.
Blockchain may one day be used to instantly transfer stakes in UK student or PRS real estate. But this would have to be backed up by certain assurances, such as:
- That the property is owned by the right person
- That it’s fully let
- That the management agreement and the form of tenancy or licence agreement for student occupiers are legally robust
- That a certain percentage of the units are subject to nominations rights in favour of a local university.
It would defeat the object if investors had to verify this for themselves, particularly when investing at a relatively low financial level.
A similar low-tech hack exists in the form of certificates of title. These are essentially an assurance by an insured, qualified lawyer that an agreed set of important facts are true, in respect of the certified asset.
To allow for tokenisation, there needs to be reform of laws and regulations on real estate investment trusts (REITs) investor protection and land registration. But the student accommodation industry also needs to consider what common legal and management standards should apply to a completed and let student scheme being marketed in this way.
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