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Move to enable alternative financing and investments through real estate tokenisation

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Financial inclusion: Real estate tokenisation will add to a growing list of financing options available to property developers to raise funds for their projects through the capital market

Real estate tokenisation – a rapidly growing global trend in real estate financing and investments – may soon become a reality in the Sultanate of Oman as part of efforts by the Capital Market Authority (CMA) to provide alternative financing and investment options for real estate companies and investors.

According to a high-level official, the introduction of real estate tokenisation is a possible option for consideration under the proposed new regulatory framework for virtual assets and virtual asset service providers currently being established by the CMA to regulate and develop the virtual assets industry in Oman.

The “Regulatory Framework for Virtual Assets (VAs) and Virtual Asset Service Providers (VASPs)” currently being established by the Authority will, upon its formal promulgation, allow the issuance of virtual assets such as real estate tokens for the first time in the Sultanate of Oman, said Kemal Rizadi Arbi (pictured), Expert/Adviser at the Capital Market Authority.

“Real estate tokenisation enables the developer to convert pieces of real estate into blockchain-based tokens that can then be offered to investors, similar to the securitisation of bonds and Sukuk. This tokenisation approach will further open up investment opportunities in the real estate sector for both local and foreign investors, thereby injecting liquidity into the market'', he explained.

The official made the observations during a presentation on the theme, “Alternative Financing & Investments in Real Estate through the Capital Market”, at the 2022 Oman Real Estate Exhibition & Conference held in Muscat recently.

As part of the initiative to enable fundraising options through real estate tokenisation, the CMA will explore the introduction of virtual asset exchanges such as crypto exchanges under the proposed virtual assets regulatory framework, said Arbi.

“Crypto exchanges will enable investors – both local and international – to invest in real estate tokens, thereby providing more liquidity to property developers interested in raising funds for their projects. Tokenised assets being more liquid are preferred by investors, especially when listed on a crypto exchange, allowing investors to buy or sell at their choosing, thus attracting a far wider investor base to enter this market.”

According to the official, the CMA is currently engaging with experts to help draft an “internationally benchmarked regulatory framework” governing virtual assets, which may include crypto currencies and tokenised assets. “We are targeting to introduce this regulatory framework, hopefully by the third quarter of this year'', he stated.

Significantly, real estate tokenisation – when formally approved and rolled out – will add to a growing list of financing options available to property developers to raise funds for their projects through the capital market, says Arbi.

The issuance of fixed-income instruments, such as bonds and Sukuk, has already been a popular route for many companies, including real estate companies. More recently, Real Estate Investment Trust funds (REITs) were added to the list of options. Also being primed for implementation in this regard is through crowdfunding platforms, following its authorisation by the CMA and the licensing of the first global and Islamic crowdfunding platform, Ethis.

The Authority’s efforts to introduce new financing options through the capital market are in line with Oman’s Vision 2040 strategy to diversify the economy and providing an alternative financing solution to support the diversification programme, said the official.

“To this end, we have introduced a number of conventional and Islamic financing and investment methods through the capital market for companies and investors, especially to attract foreign investors into Oman. All these initiatives by the CMA also aim to provide an alternative financing platform for companies, including SMEs – some of which are property developers – to raise their funding requirements directly from local and global investors, without having to go through financial intermediaries such as banks. In offering these alternatives, the CMA is also supporting financial inclusion by enabling fundraising access to everyone, not only the big players, but also other smaller players for their funding needs'', Arbi added.

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