The Lagos State Government has revealed plans to tokenise real estate on the blockchain; essentially turning them into NFTs that are easily transferable.

This plan is contained in the Eko Revenue Plus Summit documents that highlight the plans by the Lagos State government to increase internally generated revenue.

This tokenisation process is expected to take 16 months, and the Ministry of Science & Technology will do it in collaboration with other agencies and partners.

These agencies and the ministry will utilise a ₦500 million budget to tokenise real estate in Lagos.

What is tokenisation?

Tokenisation is a concept that takes something physical or virtual and turns it into a digital token that can be easily traded or transferred; it could be a movie ticket or a gift card.

Storing these tokens on the blockchain means they are transferable over chains like Ethereum or Solana.

Basically, a certificate of ownership can be tokenised and transferable as easily as transferring USDT or other kinds of cryptocurrencies. So whether it is a physical asset or a digital asset, whoever has the certificate of ownership is the legal owner.

Tokenisation became a very popular phenomenon in 2021 with the advent of non-fungible tokens (NFTs).

Digital artists, musicians, and even celebrities began creating and selling unique digital assets as NFTs. These NFTs, secured on the blockchain, became highly sought after as collectors and investors saw them as a new frontier in digital.

Some tokenised digital art sold for as much as $69 million. What made them especially profitable was the blend of scarcity, hype, and the potential for these digital tokens to appreciate, much like rare physical art.

This sudden surge in popularity turned NFTs from a niche technology into a global sensation, sparking debates about the future of digital art, collectables, and ownership.

Unfortunately, the NFT bubble burst in 2022. Dune Analytics revealed in September 2022 that NFTs had lost 97% of their trading volume, going from $17 billion in January 2022 to $470 million by September 2022.

Tokenisation for real estate

While the NFT trend died, it had other use cases beyond trading digital art, one of which was in the real estate sector.

Real estate tokenisation means turning the ownership of a property into digital tokens on a blockchain. Each token represents a small part of the property, allowing investors to own and trade portions of it more easily and clearly.

While real estate tokenisation is a relatively new concept, it has been done a couple of times before.

For example, in 2018, an asset management firm based in New York completed the tokenisation of a resort on the Ethereum blockchain.

The resort known as St. Regis Resort in Aspen, Colorado, US was turned into tokens on the blockchain, with each token representing a share of the property. These tokens were sold to accredited investors, allowing them to own a part of the luxury resort.

After that tokenisation got attention, another property valued at $30 million was tokenised by the same asset management firm.

Similarly in the UK, a company called Smartlands became the first company to tokenise property in the country. This platform allows for the issuance of digital shares, or security tokens, backed by assets like real estate or agriculture, making high-yield investments accessible to retail investors with lower buy-in thresholds.

Another German-based company, Brickblock turns real estate, including homes and business properties, into blockchain tokens to make it easier for people to invest and transfer ownership of properties.

Real estate tokenisation in Nigeria

The idea of tokenising real estate in Nigeria is not new. In 2022, Nigeria's Minister of State for Budget and National Planning, Clem Agba said that “in real estate and trade, we can harness blockchain to create and store all lands in their base units of a plot as non-fungible tokens (NFTs).”

How will it work?

Tokenisation is like creating shares in a company, but with a key advantage: it allows you to divide ownership of something hard to sell, like real estate, into smaller, easily tradable parts.

Interestingly, there's a Nigerian company called House Africa that also does this. Nnamdi Uba, Co-founder of of the company told Techpoint Africa on a call that the tokenisation process involves creating a digitised version for the location of the asset.

"See it as creating a metaverse." This metaverse is then available on a platform for people who wish to own a percentage of the asset.

For example, if the property to be tokenised is a hotel, the map of the area on which the hotel sits will be recorded on the metaverse. The area will then be broken down into square meters that are available for sale.

The price of each token will be dependent on the total value of the hotel.

House Africa has a platform called Sytemap that helps people shopping for real estate to visualise the the property.

Uba pointed out that tokenisation makes properties more liquid as several people can pull funds to purchase the assets.

He also pointed out that thorough KYC is done on any property before they are onboarded on the platform.

Although tokenisation might be democratising access to real estate investment, there are several challenges to making it work. While pushing the idea of tokenisation in 2022, Agba said, “To have a fruitful conversation about the regulation of any industry, it is first important to have an understanding of the structure of governance overseeing the industry .”  

Besides regulation, another challenge is real estate data. Pison Housing Report, 2022 showed that documented and registered houses in Lagos are 1.4 million, however, the number of unregistered houses is unknown.

But with a ₦500 million budget, maybe the Ministry of Science Technology will figure it out.

Source : Techpoint Africa - Aug 14, 2024