Connect with Michael:
Email: [email protected]
While real estate tokenization has been touted as a new movement, it hasn’t yet garnered significant momentum. As the coronavirus has accelerated the world economy’s digitization, has the pandemic pressure accelerated tokenization in real estate as well? In this episode, we have Michael sharing his thoughts on it.
Michael Wong is the co-founder of MaiBlocks Technology and MaiCapital, which is a fintech start-up in HK that aims to solve an age-old problem: making illiquid investments more liquid.
- Why is the security token offering a big topic in real estate?
- How to participate in real estate tokenization
- Things to be aware of while investing
- Impact of COVID on real estate STO
As it can be difficult to catch some minor errors, transcripts may contain a few typos or inaccuracies.
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Asia Security Token Alliance (ASTA): https://asiasta.com
Real Estate Security Token Offering: STO in real estate allows investors to have fractional ownership as the security tokens represent the market value of tokenized real estate assets.
Illiquid investment: Securities or assets that can neither be sold or exchanged easily for an equal value.
Digitized fund: Digitized funds are capital funds that have been digitized with the use of blockchain technology.
Blockchain technology: A blockchain is basically a chain of blocks containing information online. The structure of a blockchain technology is designed as such, so that the data stored within cannot be tampered with.
REITs: REITs are companies or farms that manage or own properties that generate a stable income. With REIT investment, investors can enjoy a steady profit without going through any hassle of operating the asset.
STO exchange: STO in real estate allows investors to have fractional ownership as the security tokens represent the market value of tokenized real estate assets. These tokenized assets can be traded on platforms known as STO exchanges.
Alright, let’s get back to the transcript of the show. Enjoy!
Darren Wong: [00:00:00] [00:00:00] Hey, Mike. Hey, thanks for joining us.
[00:00:01]Michael Wong: [00:00:01] Hey Darren. Good to see you again.
[00:00:03]Darren Wong: [00:00:03] Yeah, It’s been half like a year last time I see you.
[00:00:07]Michael Wong: [00:00:07] Yeah, it’s been a while. All these [00:00:10] interesting things happening in the world.
[00:00:11]Darren Wong: [00:00:11] Yeah, which is something that I’ll talk to you about, because we’re both in ASTA. And then we haven’t talked about what’s going to
[00:00:20] market or even what’s going on with regulation and even the real estate security token offering space. So this interview is something that I really want to talk to you about, even personally,
[00:00:30] to learn more what’s going on. So for the audience that don’t know who you are and what you do, would you mind give them a very short intro?
[00:00:38]Michael Wong: [00:00:38] Oh, sure, definitely. So Hi,
[00:00:40] everyone. My name is Michael and I’m a co-founder of MaiBlocks and MaiCapital. And what we’re doing here is we’re a FinTech
[00:00:50] startup here in Hong Kong that aims to solve an age-old problem, which is turning illiquid investments into something more liquid.
[00:01:00] And we’re trying to use the power of blockchain to help with that. So when people think about, for example, investing into real estate, traditionally, people would immediately associate that with
[00:01:10] something that’s very illiquid. So what we’re hoping is to use the power of blockchain to basically make this whole investment
[00:01:20] much more liquid. We’re calling this as digitised funds. But you can check out more on our website as well
[00:01:30] at maiblocks.com.
[00:01:31]Darren Wong: [00:01:31] So for people who don’t know about blockchain or crypto, what are the differences between the security token offering and initial coin
[00:01:40] offering in simple terms?
[00:01:42]Michael Wong: [00:01:42] Yeah, so there are a few key differences I would summarise them into a
[00:01:50] few key words. One is asset backed, the other one is regulation. And the third is risk. So both ICOs and STOs,
[00:02:00] STO meaning security tokens, use blockchain technology to enable a crowdfunding mechanism for people to raise capital.
[00:02:10] And the key difference here is STOs are backed by actual tangible assets. These could be real assets like real estate, or it
[00:02:20] could be income streams or profit streams, where ICOs are more promises of future services or
[00:02:30] future products that you could use or buy. And so that’s one key difference is STO is backed by something that’s much more tangible.
[00:02:40] The other thing is regulation. So there’s really, in many jurisdictions, STO is heavily regulated. There’s specific
[00:02:50] rules on what you can and cannot do, whereas ICOs in many cases are not. So the third key difference, which is risk,
[00:03:00] because the ICO is, in many cases, not properly regulated, it could be rampant with fraud and scams. And there’s a much
[00:03:10] higher risk of speculation, where STOs is much more grounded.
[00:03:13]Darren Wong: [00:03:13] So obviously like blockchain has been a big topic for not only real estates, so is a really big industry and something that a lot
[00:03:20] people, like yourself, obviously is thinking about, it’s gonna change how we look at trading and how we securitize something. So why is it huge
[00:03:30] for real estate when it comes to STO and then how’s the difference comparing to a REITs?
[00:03:37]Michael Wong: [00:03:37] Yeah, so real estate, as I started
[00:03:40] earlier, people associated with investing in real estate is difficult to get in and also difficult to get out, meaning it’s very illiquid.
[00:03:50] Traditionally, in the real estate world, there aren’t that many ways to invest into real estate, especially on commercial properties.
[00:04:00] Traditionally, either you go through private equity, which is still very illiquid in its form or through REITs, which is
[00:04:10] essentially an IPO. So a listed process, which is much more liquid, so it allows a lot of people to get in, get out much easier, but it’s very expensive to
[00:04:20] structure. So, what ends up happening is REITs tends to have many many assets under its portfolio. And
[00:04:30] so the whole investment profile, the whole return profile, is washed out, is averaged out across many different
[00:04:40] assets. So for you seldom you would see single asset REITs, for example. STO in this case, because it is cheaper to structure
[00:04:50] and is cheaper to issue, then it allows asset owners to structure single asset STOs, which would
[00:05:00] offer similarly more liquid capabilities so people can get in and get out easier. So that’s one of the key differences between
[00:05:10] STO and REITs. There are other differences. For example, REITs are usually traded in public markets, which is only opened during business hours. Tokens
[00:05:20] can be traded 24/7, and there are also these various differences as well.
[00:05:25]Darren Wong: [00:05:25] So obviously, it sounds really cool, right? I mean, just something that as a real estate investor, like,
[00:05:30] wow, that’s crazy. You can do that. But then, people have talked about this for a very long time, but how has it not be a mainstream? And then, in that regard,
[00:05:40] obviously it’s not mainstream yet, what kind of challenges there are for the real estate asset being tokenized?
[00:05:44]Michael Wong: [00:05:44] So on the first point, it has been talked about
[00:05:50] this concept for over a year. And however it is still relatively new. It’s a new concept, especially to investors. And I think
[00:06:00] there are a few reasons. You know, one reason obviously is they are still a lot of hurdles to get through before you can actually issue an STO, including technology,
[00:06:10] regulation, even financial considerations. But we think there’s also one key element that’s been missing in this
[00:06:20] ecosystem is exchange. A big benefit of STO is liquidity, so ability for people to exit the secondary
[00:06:30] markets, like exchanges. However, exchanges that can support security tokens need to be properly regulated and licenced. And so, this depends on the
[00:06:40] regulator giving out licences to these operators. And right now, the regulator’s from all over the world it’s still been slow in distributing
[00:06:50] these licences, so the virus definitely put a
[00:07:00] pause on all these activities as well. But we think over the next 6 to 12 months, we do expect more and more of these exchanges to pop out with
[00:07:10] proper licences and proper regulation behind them. And so once these markets appear, then hopefully these liquidity will then show up.
[00:07:20] And so that’s one of the reasons why it hasn’t really picked up in the mainstream. And regarding your second question on why
[00:07:30] hasn’t real estate asset owners swarm to doing tokenizing these assets? I think, in a lot of cases,
[00:07:40] people are in a wait-and-see mode, whereas they don’t really want to be the first guy hooked and, so a lot of
[00:07:50] people are just waiting for more success stories before they jump into this. So this becomes a little bit of a chicken and egg where you want to have good
[00:08:00] assets out there but then you want to have good liquidity and which comes first.
[00:08:05]Darren Wong: [00:08:05] So in your opinion, what type of real estate asset type what
[00:08:10] investment strategy that are best suited for tokenize? And then, what aren’t the best for tokenized?
[00:08:16]Michael Wong: [00:08:16] Yeah, so, again, because this is still a very new
[00:08:20] concept, so we want to remove as much of the uncertainties as possible. And so, by putting assets that
[00:08:30] are less risky, that are already generating regular dividends or regular yields, those types of
[00:08:40] assets, I think, would make more sense for STOs today. And also commercial properties
[00:08:50] is going to be more interesting for STO space because there are already many different ways for people to invest into residential properties. Now, whereas commercial properties are
[00:09:00] still quite limited in the accessibility of it. So we think a mixture of these type of assets would be a better fit for now.
[00:09:09]Darren Wong: [00:09:09] I
[00:09:10] see. So, I know because we talk a lot before about what kind of asset and everything, right? Is there something in your mind that you think it
[00:09:20] should be, because less risky is a very broad term, is there a certain like size or even, for example, income generating and
[00:09:30] less risk? What does that mean to you? Does anyone know in your point of view, that’s it.
[00:09:33]Michael Wong: [00:09:33] I think there’s an element of, you know, how much of the market exists today. So if you throw
[00:09:40] something out that’s huge, let’s say a billion dollar worth of assets, probably the market is not there yet to pick up the whole
[00:09:50] piece of the asset. So in terms of size, I think we’re still in the 10 to 100 million dollar size,
[00:10:00] kind of the US dollar market. And in terms of risks, what we’re meaning is that there are different types of investment
[00:10:10] properties. It could be a property where you’re just buying a piece of land where the whole property hasn’t been built yet, but it needs to be built up from ground up. So
[00:10:20] those, in many cases, are what we categorise as much more risky, versus where you already have an existing building that’s in an
[00:10:30] office building and you’re already collecting rent from existing tenants. We have an ongoing track record from the returns of the
[00:10:40] property that we’ll, in our state, will categorise it as a more certain investment.
[00:10:48]Darren Wong: [00:10:48] I see. I
[00:10:50] think that I feel like if we do this, like every single year, I think it will be like, you look back to how things are becoming and evolving, that would be kind of cool in the future from
[00:11:00] speculating to it happens more cases in cases, because I obviously hope the industry goes well, too. So something that is in my mind be like, “that’s kind of cool if that happens”. And
[00:11:10] so as if to follow up, so what other components or parties need to be involved or participate to make the real estate tokenization happen or matured?
[00:11:19][00:11:20] Michael Wong: [00:11:19] They are obviously different players. There’s technology players, there are financial players and obviously the real estate players. But I think a big key component is
[00:11:30] regulators, or the government. So basically having the government behind it, and putting
[00:11:40] down the right rules and regulation to protect investors, I think that would give a lot of confidence to attract
[00:11:50] more, both retail and institutional investors to come into the space. So I think that is a big piece of this as well.
[00:11:57]Darren Wong: [00:11:57] I see. So for
[00:12:00] existing real estate STO out there, what are things that the audience need to be aware of?
[00:12:07]Michael Wong: [00:12:07] Ultimately
[00:12:10] what the investors will be investing is the underlying asset. The token really facilitates the investment but it’s not really the point of the
[00:12:20] investment, when you’re investing is the underlying property or real estate or whatever asset it is. So I think the key is the valuation of what you’re investing
[00:12:30] should focus mainly on that asset itself, rather than the token. So this removes a lot of the
[00:12:40] speculative aspect of this. And I think that’s most important. I mean, the other parts also is you need to
[00:12:50] worry about the issuance and the service providers that are providing these tokens to you making sure that they’re
[00:13:00] legitimate. They are proper. That’s to protect you on investments.
[00:13:05]Darren Wong: [00:13:05] That’s good. Well, because like we’re both in Hong Kong and something that even I want to
[00:13:10] ask you, where are we with the real estate STO in Hong Kong, and then how’s activities with different countries at the moment?
[00:13:19]Michael Wong: [00:13:19] Hong Kong,
[00:13:20] frankly, has been relatively slow, compared to the rest of the world. I think the regulator has been pretty public
[00:13:30] about supporting digital assets and related business, including STO. However, we have not seen any
[00:13:40] actual licences, for example, that’s given out to exchanges. But we do expect probably maybe that was
[00:13:50] delayed by the virus pandemic. Hopefully we’ll see some progress closer to the end of this year.
[00:14:00] Compared to the US and Singapore, they actually have already issued licences to exchanges and major players in the space. So
[00:14:10] at least for now, seemingly, they’re moving a little bit faster than Hong Kong. But hopefully Hong Kong can catch up soon.
[00:14:17]Darren Wong: [00:14:17] So like you know,
[00:14:20] at ASTA for a while, learning about the sharing insight about STO world and stuff like that. And there’s a lot of noise online too, and
[00:14:30] everyone have different opinions and stuff like that. What is something in this industry that you think is misunderstood or overrated?
[00:14:35]Michael Wong: [00:14:35] I think there’s a lot of
[00:14:40] misconception STO the T stands for token. But when people think about token, then a lot of people immediately associate that with ICOs
[00:14:50] or a lot back in 2017 2018, where there were a lot of frauds and scams associated with ICOs and
[00:15:00] tokens, and so people will immediately become very risk averse on accepting does that idea, even though you know token is essentially
[00:15:10] a term that we computer geeks come up with, to represent something that’s virtual. It’s
[00:15:20] really a tool, and a tool can be properly managed and the risk can be contained if
[00:15:30] there are enough protections around it. And so, STO is nothing like these type of scam tokens out there. So I think that’s one of the biggest
[00:15:40] misconception of them.
[00:15:41]Darren Wong: [00:15:41] I see. So for the audience, right, who might be people who are technologists, real estate owners,
[00:15:50] or people who just want to participate in this whole movement, what would you suggest that they can participate?
[00:15:58]Michael Wong: [00:15:58] So,
[00:16:00] I think the best thing is to invest, to actually try it out. I think you won’t know how it works until you actually try it. I
[00:16:10] don’t mean going all out and put all your savings into it, but there are now more and more ways for people to
[00:16:20] get on exchanges or websites where you can actually legally buy and invest in these STOs. So I would
[00:16:30] encourage people to just try it out, put down a little bit of money just to see it and see how it works.
[00:16:34]Darren Wong: [00:16:34] So just now, I think a couple questions ago, we talked about how COVID-19 might have
[00:16:40] delayed a little bit of the process, right? But then even with COVID-19 and the recession, how do you think that they impact the real estate STO movement so far?
[00:16:49]Michael Wong: [00:16:49] It’s
[00:16:50] interesting, because the pandemic, while it’s devastating to many people, forced a lot of people to think about how to do things differently.
[00:17:00] And one of the key impact is just a lot less face-to-face time. Now even you and I have to
[00:17:10] talk over Zoom now instead of meeting face to face.
[00:17:14]Darren Wong: [00:17:14] We’re twenty minutes away, you know. I could take a cab and find you. Yeah, sorry, keep going.
[00:17:20] Sorry about that.
[00:17:20]Michael Wong: [00:17:20] No worries. So a lot of traditional means of raising capital, such as private equities, a lot of deals close
[00:17:30] after face-to-face meetings, but then now these meetings don’t occur, and which means it’s much harder to close these deals. And so STOs offer an alternative way for
[00:17:40] people to, to close deals and raise capital. Furthermore, I think the pandemic is causing a lot of valuation
[00:17:50] issues for real estate home and asset owners as well. And so, some of these guys are now looking into more alternative ways to raise capital,
[00:18:00] beyond just the traditional means. And so I think STO is something that is now getting on their radar.
[00:18:07]Darren Wong: [00:18:07] Yeah, because like, I think there’s a company that I
[00:18:10] think we both know are doing like virtual roadshow, and then I was like, “Oh, that’s kind of cool”, and then I was looking at some tech recently were
[00:18:20] like virtual showing, drones surveillance and stuff like that. I even, personally, I feel like this can work, everything combined together, it’s not only STOs about the investing
[00:18:30] world, about the real estate investing, how we come together to build in and more people can participate in all shape and size. And then so like the audience might not
[00:18:40] know that you’re from San Francisco, and I’m sure you have technologists thinking, what should we expect to see when it comes to the STO world in a few years time?
[00:18:50] My point of view.
[00:18:51]Michael Wong: [00:18:51] I think we would expect a much more vibrant ecosystem with a lot of different players, with exchanges, with issuers,
[00:19:00] with asset owners and investors right all together and seeing this whole story play out on a global basis as
[00:19:10] well. So we’re not talking about Hong Kong people investing into Hong Kong assets, we’re talking about Hong Kong people investing into tokenize assets from the States, and people
[00:19:20] in Africa investing into assets potentially in Hong Kong. So I think that’s what we expect. It does take more time to build it out.
[00:19:30] But I think in three, four years time, this will be much more interesting.
[00:19:34]Darren Wong: [00:19:34] I see. If you have a message to everyone in the STO or real estate
[00:19:40] sector, and what would that be?
[00:19:42]Michael Wong: [00:19:42] I think what’s happening in the world today is really a strong
[00:19:50] indication that a lot of things needs to change and how they’re done. And there’s a lot of talks about
[00:20:00] whether globalisation was to exist with this pandemic still running rampant and people can’t travel and they can’t see each other. But I think
[00:20:10] globalisation will still continue, but is in much less a physical form.
[00:20:13]Darren Wong: [00:20:13] I see.
[00:20:14]Michael Wong: [00:20:14] Instead, I think a lot more things will happen online, right? We didn’t have these zoom calls much, at
[00:20:20] least much less frequent, before COVID-19. And so a lot of things will happen online, transactions will happen online, and STO is poised
[00:20:30] to replace a lot of these real-estate-type investments and transactions and activities.
[00:20:35]Darren Wong: [00:20:35] Actually, that sounds like a very good takeaway for the audience just to know what’s going on. And
[00:20:40] do you have other takeaways that you want the audience to take away from this whole video?
[00:20:45]Michael Wong: [00:20:45] Yeah, I think it’s STO again, it’s a brand new concept. I
[00:20:50] think it’s a very interesting concept, whether you’re an investor or an asset holder, it’s something that could be interesting and valuable to you. And so if you’re
[00:21:00] looking into this a little bit more and you want to learn more about it, please check out our website, maiblocks.com,
[00:21:10] m-a-i-b-l-o-c-k-s-.-com and you can even sign up on our platform and check out on deals that we start to have on our platform. And
[00:21:20] if you’d like to talk to us personally, maiblocks, we can offer an end-to-end service in the space of Sto. And we would love
[00:21:30] to talk to you about it.
[00:21:31]Darren Wong: [00:21:31] That’s great. I think, Well, obviously, I will include everything in the show notes. And then I think we should meet up soon because it’s been a while.
[00:21:40] Thanks so much for your time. Because we know what Denzity insight, we cover a lot of different things. And STO has been this biggest biggest thing that
[00:21:50] I even take a long time to learn and digest everything, so I hope that we have this more often some kind of long form discussions. And then even maybe we can
[00:22:00] have this like whole every quarter of learning about STO what’s going on. So it’s something that I want to thank you for having the time to talk to us and then I hope the audience, too, will learn more about
[00:22:10] how the whole world will be coming a couple years time.
[00:22:13]Michael Wong: [00:22:13] Yeah, definitely. Thank you for taking the time to learning about our world. And I think this is a great channel for
[00:22:20] people like us to communicate new ideas to the world.
[00:22:23]Darren Wong: [00:22:23] Yeah. Thanks so much and talk to you next time then, thank you.
[00:22:26]Michael Wong: [00:22:26] Alright, see you later. Thank you. Bye bye.
[00:22:27]Darren Wong: [00:22:27] Bye bye.