Fundraising issues cloud growth prospects in property investment

Investors are now facing challenges in sourcing funds despite growth in capital seen in the past year.

Real estate developers and investors are now facing challenges in sourcing funds and accessing investment opportunities despite a rapid growth in capital seen in the past year.

In end-2020, the Asia Pacific region saw the total value of real estate investments in the region reach US$3.3t.

Real estate investment in the region reached US$104b in 2021, accounting for 57% of the total transactions last year.

Given the strong economic recovery in the APAC region from the recession, real estate transactions are expected to bounce back by about 15% in 2021 and to grow at a 6% compound annual growth rate thereafter, reaching the US$268b mark by 2025.

“As the need for capital to facilitate real estate projects continues to grow steadily, there is a clear need for an alternative fundraising channel that addresses the structural challenges that exist under the traditional financing framework,” Dennis Chow, chairman of Deloitte China, said.

“Tokenization may offer additional impetus to total transaction growth by boosting liquidity in the real estate market.”

The use of security token offerings (STO) is expected to serve as a highly flexible capital raising avenue.

It offers advantages over REITS, including lower structuring cost and complexity for issuers, and enhanced operational efficiency with a programmed distribution of dividends through smart contracts.

“The establishment in Hong Kong of a regulatory framework catered specifically for virtual asset trading platforms that trade security tokens is an implicit recognition that STOs will be a feature of capital markets in the future,” Joy Lam, partner at Sidley Austin LLP, said.

“With the introduction in Hong Kong of a clear regulatory framework for the key service lines that are required to support the STO ecosystem, coupled with increasing education and awareness amongst market participants of the advantages, the STO market is at an inflection point.”

Real estate STOs will also provide larger flexibility, higher operational efficiencies, and enhanced liquidity for investors and issuers.

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