When SEBI Met Blockchain: A Tale of FOPs and Tokenization

As if the Indian real estate sector wasn’t thrilling enough with its wild ride of prices, we’ve entered the era of Fractional Ownership Platforms (FOPs). Yes, you heard that right.

FOPs are here, promising us a taste of property ownership for a fraction of the usual cost. But wait, there’s more! The Securities and Exchange Board of India (SEBI), has decided to throw its hat in the ring, ensuring our fractional dreams are safely regulated.

A brief look at SEBI’s guidelines

Now, SEBI is not known for its love of surprises. Like a strict parent, it’s proposing to bring these FOPs under the REIT Regulations umbrella, giving them the catchy title of Micro, Small, and Medium REITs (MSM REITs). Just like your typical Indian family, an MSM REIT should have key characters like a trustee, sponsor, and investment manager, each with a distinct role and a requisite net worth.

I mean, who needs a soap opera when you’ve got SEBI’s regulations to entertain you?

To make it more entertaining, SEBI has laid down the law for minimum investments in FOPs, which can range from a modest Rs 10 lakh to a slightly less modest Rs 25 lakh.

It’s like playing poker but with real estate — you’ve got to know when to hold ’em and know when to fold ’em. To add a dash of excitement, any entity facilitating fractional investment will need to register with SEBI to operate as an MSM REIT. The sponsor and investment manager are required to have a net worth of at least Rs 20 crore and Rs 10 crore, respectively

This is in a country where the average Indian earns 50,000 RS per month or less.

But hold on to your seats, folks, because here comes the twist in the tale: blockchain-based tokenization platforms. Yes, we’re talking about the same blockchain technology that’s been creating waves in the finance sector. For those not in the know (and let’s face it, that’s most of us), tokenization is the process of converting the value of an asset into a token that can be subdivided, bought, sold, and traded on a blockchain platform.

You can read about tokenization in my previously published articles if you are interested to learn more. Here is the link —

https://harmanpuri.medium.com/unlocking-real-world-value-with-blockchain-technology-ace64a1d9c0e

Is SEBI promoting Blockchain? Yes, but don’t tell them

The regulation of FOPs by SEBI inadvertently provides a regulatory framework that could potentially apply to Blockchain-based tokenization.

Here’s how: by regulating fractional ownership, SEBI is essentially normalizing the idea of splitting an asset into smaller parts and selling those parts to individual investors. This concept is the very foundation of tokenization. Once the public becomes comfortable with the idea of owning a fraction of a property, it’s not much of a leap to owning a digital token that represents a fraction of a property.

After all, tokenization is essentially fractional ownership on steroids.

Just like all the other centralized systems in the world, highlighting the monopoly, bureaucratic leadership, market manipulation, and all the rest, Blockchain WILL emerge as the knight in shining armor (I have got to stop using this reference in every other blog).

Additionally, the requirement for FOPs to register with SEBI could also apply to tokenization platforms, providing these platforms with a much-needed layer of credibility. It’s like SEBI is unintentionally giving tokenization the green light, saying,

“Go forth and tokenize, but remember, we’re watching you!”

So, what does the future look like for Blockchain?

In conclusion, while SEBI’s focus on FOPs might seem like a detour from the bright future of blockchain tokenization, it might just be the stepping stone this nascent technology needs. By regulating FOPs, SEBI could unwittingly be leading us into a future where blockchain tokenization is as common as ordering a cup of chai.

Now, wouldn’t that be something? It’s always fun to watch traditional systems scramble to make sense of new technology. It’s like watching your grandparents trying to use a smartphone for the first time — it’s frustrating, endearing, and hilarious all at once.

But in the grand scheme of things, it’s progress. The traditional real estate market, with its high entry barriers and complex regulations, is finally making way for a more democratic, accessible, and transparent market.

And while SEBI’s attempt to regulate FOPs might seem like a strict parent imposing a curfew, it could just be the protective push that blockchain needs to come out of the shadows and take center stage in the Indian real estate market.

Especially at a time when countries like Canada are restricting investments in their real estate market, specifically residential properties for TWO years. The law passed on 1st January 2023 has banned foreign investors from the same.

Cheers!

Maybe one day we’ll all be swapping stories about our first tokenized property over a cup of chai.

So, SEBI, ready to pave the way? The blockchain revolution awaits. We promise it’s going to be one hell of a ride! And who knows, you might even enjoy it. After all, as the saying goes,

“Regulation is just a stepping stone on the path to innovation.”

Or did I just make that up? Either way, it sounds good, doesn’t it?

Here’s to the future of real estate.

A future where blockchain, tokenization, and regulatory bodies like SEBI exist in harmony, working together to revolutionize the real estate market.

May it be as exciting, unpredictable, and innovative as we imagine!

Interested in learning more about Blockchain, tokenization, and the careers in it? Check out the pieces at ASB — https://asb.guru/blog/

See you in the next blog.