Imagine a world where real estate transactions are fast, cheap and come with zero risk of fraud. Now imagine they can all be done digitally in a decentralised, public platform. While that might sound too good to be true, one UAE businessman hopes to use online ledger technology blockchain to turn the concept into reality.
Blockchain was originally launched to host digital currency Bitcoin and facilitate transactions while keeping track of assets. However, it took centre stage when technology experts realised it could be used to digitalise almost any industry, solving critical issues for consumers, businesses, financial institutions and governments.
Information “blocks” held on blockchain are shared and continually reconciled, meaning they are not stored in any one single location or controlled by a particular entity. Proponents of the technology believe this greatly reduces the risk of fraud while keeping records public and quickly verifiable. Because blockchain stores identical blocks of information across its network on millions of computers, it also has no single point of entry or failure, proponents say.
However, you do not need to know much about the mechanics of blockchain to realise it bears groundbreaking potential, having operated without major disruption since Bitcoin’s creation in 2008. Industries from insurance to healthcare to remittance houses are all banking on the technology, with the Gulf’s biggest remittance firm, UAE Exchange, having made at least three investments in blockchain-related start-ups within the past year. Meanwhile, last week, computer software giant Oracle announced it would unveil a new blockchain-based cloud computing platform next year.
Closer to home, Omar Kassim is the aforementioned businessman who plans to lead blockchain innovation in the UAE. The founder of Dubai-based online retailer JadoPado made headlines in May this year when he sold his firm to mega e-commerce concept Noon.com, headed by Emaar chairman Mohamed Alabbar.
Just two months later, the tech magnate set up a new business, Esanjo.com, which he claims will rewrite the rules of investment in the Middle East’s real estate market by enabling alternative ownership structures using blockchain. The platform allows developers and buyers to set up decentralised points to log and market projects and acquire ‘crypto-tokens’ that could represent anything from gold certificates to coins or loyalty points. In Esanjo’s case, the tokens are a type of virtual currency that will enable the platform’s users to buy and sell real estate assets and transact the income generated by the assets, all within a secure online marketplace.
Real to virtual
With the firm set to launch in the next four to six months, Kassim tells Arabian Business in an interview that he wants Esanjo to be the ‘sandwich’ bridging the real and digital world. “Take a body like Real Estate Regulatory Agency (RERA),” he says. “It has plans to do things on blockchain, but it is not there yet. If people want to own assets through a regular corporate structure, they can [do that] and then Esanjo [can act as] the asset management company to carry out the administration. Hopefully over time…when the real world from the government perspective starts to apply blockchain, we can say, ‘Okay, we are going to undo our corporate structure and basically natively use the blockchain.’ It is sort of like a transition process,” he says of the gameplan. His venture is currently engaged in conversations with owners of real estate assets. While it may not end up buying any assets, it will use its platform to help owners organise their assets and get liquidity into their portfolios. “In that situation, we are a provider of technology and not necessary at the forefront [of real estate deals],” he says.
However, in reality, the serial entrepreneur is doing more for the regional property market than he lets on, revealing that his firm will use blockchain to offer cheaper marketing and other solutions to developers to access global investors, opening up the property market to a wider base of customers.
“We see multiple assets closed to many investors and real estate is one example. If you look at a structure like real estate investment trusts (REITs)...the challenge you typically have is that there is a [minimum] asset size you need to meet in order to take it into a particular investment vehicle, and then there are costs associated with that vehicle.”
He explains how you can easily replicate the same mechanism through blockchain to organise those assets at a far cheaper cost at a lower or higher scale and with much greater liquidity.
“So take [many examples of REITs] in the region. If I remember the numbers correctly, many have assets that would value the shares at above $1. Share prices are regularly trading in the dollar-ish range. REITs are facing the main challenge of liquidity. There are opportunities to take these physical assets and provide them with an additional liquidity layer using blockchain,” he says.
However, opinions remain divided on the sustainability of blockchain, with some experts referring to the so-called crypto crisis in June that left 38 of the top 40 digital currencies listed on the global Crypto Market Cap exchange in the red. Total market capitalisations of cryptocurrencies dropped over 20 percent from $117bn to $91bn, according to Coindesk magazine.
“Some people think it’s a sham and there is nothing to it and they form their argument from the speculation that happened in the crypto crisis, while others see blockchain as the second coming of the internet and that it could revolutionise everything,” explains Kassim.
His own view is that one of the key mechanisms within a blockchain network is its ability to issue tokens to provide some sort of financial incentive to maintain the centralised networks. He reasons that no one is going to go out and spend hundreds of thousands of dollars on equipment, connecting them to an expensive network without some sort of financial reward.
“The challenge you had is those tokens increased so quickly in inherit value, leading to a lot of speculation and rhetoric around the technology itself,” he says.
Part of the suspicions surrounding digital platforms such as blockchain are based on fears of abuse such as money laundering and hacking. Kassim says that of the 90 percent of businesses that want to use blockchain but have not done so, it is because they are worried about landing on the wrong side of global Anti Money Laundering (AML) or Know Your customer (KYC) regulations. However, he says the drawbacks are part of the adventure.
“These are legitimate businesses trying to make money… [But] anything new, there is always going to be abuse. For example, people have stopped talking about the email spam problem. Email is a great tool and luckily we have great spam filtering today. But if you look back ten years ago, millions of dollars were used to [fight the issue]. It’s the same thing with any new technology that comes out. Some people get abused for the wrong reasons, but then it gets regulated and you basically push the wrong use cases to the front.”
While Kassim’s Esanjo would not sell tokens to anonymous consumers, the risk occurs following the completion of its transaction, when it is no longer in control of the tokens. “What happens when you go out and sell that token to someone else? Who determines it? It could be anyone. If you were on a centralised venue trading on the stock exchange through the broker network, well, every broker knows their customer, but in a non-centralised network, you don’t know the participant,” he says.
As a result, regulations, or the lack of them, are the biggest hurdle when it comes to virtual platforms such as blockchain. “The challenge we have from a regulatory perspective is that there aren’t any regulations today. So you try to keep ahead of that and make sure that whatever way you structure your business, it’s going to work out. We are trying to engage ourselves from a regulatory perspective to make sure that whatever structure we use is going to comply with that, or try to shape the regulatory conversation where we can,” he says.
Part of the regulation debate revolves around blockchain’s public nature, which some experts are sceptical about. However, Kassim says the technology can operate in a private environment as well. “If you purchase a property today and it changes hands many times in 50 years, you can trace it back,” he says. “So the transference has its application, but at the same time there are situations where you may not want transparency. Say, for example, banking information. You may want to be able to determine what your balance is, but does a stranger need to see your transaction history? No. So I think blockchain’s best application is when it is in a public, open environment.”
That said, Kassim points to applications that the likes of Microsoft are working on in an attempt to apply blockchain in a private environment. “It doesn’t have to be either/or,” he says.
Microsoft launched its Azure Blockchain-as-a-Service project in November 2015 to help companies use the ledger system for smart contracts, while resolving issues such as confidentiality. It is now developing the programme through tools such as the trusted execution environment, where owners are provided with a secure storage facility in which they can entrust their blockchain code.
But one of the challenges revolving around virtual platforms is how well companies can keep up with the technology itself to provide consumers with a viable investment, according to Kassim.
“Our engineering team is working on putting those first smart complexes together. Hopefully, we’re going to bring a couple of test fund actions in the market where we can basically say, ‘Here is something you can actually invest it and it may not be the final product but it’s something that you can work with’. When something is new, you may have to do more than you would like to do and it can be expensive, but over time you will find your place.
He adds: “I would like to do as much as we can because we can then control it and offer a better end product.” Kassim refers back to the conversations Esanjo has had with asset owners, and suggests that over time the platform will look at developing other real estate technology services to support its customer base.
Getting on the ladder
Kassim may say he is “not at the forefront” of the UAE’s real estate market, but he evidently envisages a technology platform – initially based on property management fees – that can use blockchain to raise property prices, increase participation in global real estate markets and positively influence volume and production levels.
“For example, two years ago, when the UK government started helping citizens to get on the property ladder, it had an effect on price, because you suddenly had thousands of people who couldn’t previously get on the property ladder who had an incentive to do so now. So, if you increase participation, you will also have a natural inflationary effect on prices,” he explains.
The technology foundation will not matter as much, either, Kassim claims.
“If you say to end consumers, ‘Here’s an app that will allow you to pay when you go to the fuel station,’ they don’t care whether they’re using blockchain or another payment network. No one cares. It is the utility,” he says.
While blockchain certainly has a long way to go before it becomes fully workable, Kassim plans on sticking around long enough to see it prosper. “We never built it with an exit in mind. We were trying to build a business that was inherently valuable. If you build something that makes sense, you will be attractive to investors. Then it would become a choice whether you want to exit or not.”
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