Real estate asset fractionalisation is gaining popularity on a global scale, and the idea is being tested as a potential new outlet for small investors. To increase financial inclusion and meet the demands of small investors, nations including the USA, Malaysia, Singapore, and the UAE have incorporated fractionalisation.
Although the idea of fractionalisation has been present for many centuries, it has just recently become quite popular. By dividing an asset into smaller denominations, fractionalisation enables more individuals to access its value.
A portion of a corporation is purchased each time a share is purchased. Since one individual cannot purchase a whole company, shares open the door to a bigger investor base. Similar in concept, Asset Fractionalisation uses blockchain ledgers to decentralise ownership and cryptographically protect transactions.
Here, Agency21 International, the largest estate network in Pakistan, will give you an overview of SECP asset fractionalisation.
What is an Asset?
Let’s begin with the basics. An asset is a resource with economic value that a person, company, or nation owns or manages in the anticipation that it may one day be valuable.
Assets can be tangible or intangible. Anything that has a value and produces a profit is referred to as an asset. Gold and silver are assets, as well as real estate. NFTs and digital works are now considered assets as well.
What is Asset Fractionalisation
The division of a high value asset into smaller denominations is known as asset fractionalisation. A high-value asset is transformed into accessible investment opportunities for smaller investors through the procedure. Smaller investors can now benefit from this high-value, illiquid asset class as a result.
The blockchain network is used by asset fractionalisation to build a secure and open platform for value exchange. Similar to how a business issues a finite number of shares, this mechanism assigns a specific number of tokens to split the property. These shares or tokens can be traded or offered for sale to other investors.
SECP Purpose Behind Asset Fractionalisation
The unregulated asset fractionalisation process has given rise to numerous pyramid schemes and swindles that prey on the credulity of defenceless populations. An official system of asset fractionalization has been proposed by the SECP which governs the procedure and ensures that all parties are treated fairly.
It’s only a matter of time before this market has opportunists who take advantage of the unregulated market, as technology is developing at an unparalleled rate. The SECP thinks it is sensible to regulate and offer advice regarding this business model.
According to SECP, the goal of investigating asset fractionalisation’s potential in Pakistan was to develop new investment vehicles and guarantee the availability of a wider array of investment possibilities.
The regulator stated that this will lead to the creation of pools of illiquid assets and increased compliance with global best practices, as well as an equal and open capital market.
Advantages of SECP Fractionalisation
Real estate asset fractionalisation is gaining popularity on a global scale, and the idea is being tested as a potential new outlet for small investors.
To increase financial inclusion and meet the demands of small investors, nations including the USA, Malaysia, Singapore, and the UAE have incorporated fractionalisation.
According to the SECP, the concept note was published to examine asset fractionalisation’s possibilities in the context of Pakistan. In a sandbox testing environment, the regulator is also testing the company model to allow a clear version of the final product to be available for the general public.
Following are the few benefits listed by the SECP:
- Democratising real estate ownership of high value;
- Extra investment opportunity for investors;
- Directing savings towards the economy;
- Bringing formal investments, like real estate, into existence;
- Putting an end to fraudulent activities;
- Increased visibility, security, and transparency
The Bottom Line
The concept of asset fractionalisation had the ability to completely change the investment system in Pakistan. It promotes economic growth and prosperity like never seen before.
The SECP’s regulatory standards may be able to protect investors from dishonest schemes and enable them to invest their hard-earned money safely if it is successful in putting this idea into practise.