When in May 2002 Dubai pioneered the opening up real estate for foreign investments, this turned out to be a step towards transforming the market to the bold, diverse, and creative sector that it has become today, enjoying global appeal and a diverse footprint. The vision, leadership, and innovation made Dubai one of the premier property investment destinations globally.
The top-down approach meant that all real estate initiatives were synchronised and that relevant entities worked seamlessly to turn vision into reality and ensure the success of the blueprint. As a result, more than 150 nationalities embraced the market and invested in it.
Though it might seem complicated, the formula was simple. Trusting the market as a highly secure environment where all completed projects are managed by developers; ensuring straightforward transactions; and applying minimal fees with zero income and corporate tax, as well as zero value added tax on residential real estate.
Unfortunately, demand eventually declined due to geopolitical issues, regional liquidity pressures, weaker oil prices and the emergence of alternative destinations. Developers played an equally important role in the market deceleration, opting for a quick and easy profit, which put a stop to innovation and proper international marketing.
In the food business, three-star Michelin restaurants are expected to innovate in order to stay in the game and retain their stars. Real estate leadership is the same. It is high time to aim high and innovate once more.
The current unique structure of the Dubai real estate sector presents a huge opportunity to reshape the market with a new recipe of success.
Create a new proposition
The uniqueness of Dubai as a place where all entities, public and private, work together in an imperceptible partnership to the greater benefit of the city cannot be easily replicated in other markets. The synchronisation between the various sectors of the economy, the government and the investment community across the public and private sectors offers an exceptional opportunity.
This unique Dubai composition, as well as current and potential investors, are ready for the next phase of innovation. Combined with a post-Covid-19 new world that will open wider doors to the digital economy — in a manner not seen before — real estate and innovation can revitalise the market in an unprecedented way.
The government is undertaking to move all its services to the blockchain, and could take this decision to the next level by applying it innovatively to real estate investing. This will pioneer another new initiative in the region.
The real innovation that would help Dubai’s real estate market recover its unstoppable appeal and regain its glamour is security tokenisation. The real estate industry is resilient and delivers valuable — and stable — returns.
Tokens for all
Although it is future-proofed, it has always been restricted to high-ticket investments and is illiquid, complicated and opaque. Tokenisation will resolve these problems and will introduce real estate investments into the digital economy. We should remember that innovation is in Dubai’s DNA.
The emirate was the first in the region to embrace the digital economy, in partnership with the private sector, and the first to roll it out across all its government services. The government laid out the digital economy plan and infrastructure and, when the time was right, the private sector and consumers were ready to embrace it. The same can happen with digitalising real estate investments.
In February, the University of Oxford published a paper advocating digital assets titled, “Tokenisation: the future of real estate investment”. That future starts from Dubai.
To tokenise an asset is to divide it into shares or tokens that represent a clearly defined share of the asset. This is what we call a security token. The tokens are secured through the immutability of the blockchain technology.
Every transaction of tokens is completed with automated smart contracts (software algorithms integrated into a blockchain with trigger actions based on pre-defined parameters).
When tokens are mentioned, the first thing that springs to mind is Bitcoin, and it is important to differentiate between real estate tokens and other types that exist.
Bitcoin, as with other tokens launched over the last three to four years, are utility tokens. They don’t represent ownership in the underlying asset. They have value only on the platform, and investors in these utility tokens hope that, with time, the platform and the utility will grow and so will their investment.
So, how can real estate security tokens take Dubai’s real estate sector to new heights post Covid-19? This will be discussed in a second column.
— Ziad El Chaar, based in Riyadh, is CEO — Family office of Dar Al Arkan.