Tokenising Real Estate: Trust and Consolidation Key to Success

Tokenisation of land is expected to revolutionise the real estate sector in India, but more work needs to be done regarding the transparency of land records, resolving legal ambiguities, and building trust among investors. This was a key takeaway from a panel of real estate industry experts at the Moneycontrol India Web 3.0 summit in Mumbai.

The panel was attended by Niranjan Hiranandani, chairman of the National Real Estate Development Council (NAREDCO) and founder of the Hiranandani Group, Reshmi Panicker, executive director-land services and residential at Knight Frank India, Vinod Rohira, MD and CEO of K Raheja Corp, and Samujjwal Ghosh, CEO of House of Abhinandan Lodha.

In his remarks, Hiranandani said that investments in real estate and land, which is expected to be democratised through the use of blockchain, tokenised land, and decentralised records, are seen increasing significantly over the next few years. However, he noted that transparency and consolidation will also be essential for the industry.

“Capital markets have too much money, real estate is the place to put that capital. I believe that there will be consolidation first in the industry, and tokenisation second. Prior to COVID-19, the Mumbai Metropolitan Region had 18,000 developers, now there are 12,000. In the future, trust and consolidation will be more important for investors,” said Hiranandani.

Asked about assets that will be easier to tokenise, Hiranandani cited commercial property as being 'easier' to tokenise, while Rohira noted that once the real estate market matures and yields increase, any real estate asset can be tokenised.

Rohira noted that the movement towards tokenisation can be similar to real estate investment trusts (REITs), where higher yields in commercial real estate have enabled large-scale mobilisation of capital, returns to investors, and trade in clear, institutionally-owned assets. However, like Hiranandani, he also noted challenges in the real estate sector's maturity, with REITs also taking a relatively long time to be acceptable to investors.

“Our markets are not mature and disciplined to be able to adapt to a product like tokenisation, as there is no real transparency. We are a long way to go. Even the REIT model took a long time to take off,” he said.

Knight Frank India's Panicker also noted that in the tokenisation process, digitised land records are essential, as is regulatory access. She observed that some changes to existing laws, such as the Transfer of Property Act, may be essential, as are resolving conflicts between rules of various regulators, such as the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India.

Ghosh, whose firm has been one of the pioneers in marketing clear land parcels to investors through a fully-digital stack, said that Web 3.0 and tokenisation is the 'natural progression' for the company in the future.

“We have been able to take land to various parts of the country in a satchetised format to people across the globe. Tokenisation and Web 3.0 is a natural progression for us. Our endeavour is to democratise land and make land an essential part of wealth portfolio,” he said.