Propchain on a mission to digitise the real estate market through tokenisation and fractionalisation using blockchain

CNME Editor Mark Forker spoke to Robin Ubaghs, Executive Director at Proptech company Propchain, in an effort to explore how emerging concepts such as tokenisation and fractionalisation are completely transforming the once rigid world of real estate, and how the digitalisation of the sector has now made the industry more accessible and more efficient, representing a seismic shift for all the major players across the real estate marketplace globally.

Robin Ubaghs is a serial entrepreneur with a visionary mindset.

As the CEO and co-founder of Propchain, he has firmly established himself as one of the most prominent thought leaders in the burgeoning world of decentralisation.

His company Propchain, is on a mission to digitise the entire real estate value chain.

Ubaghs wants to disrupt the status quo that has existed in the rigid world of real estate, and his company Propchain, have enjoyed remarkable success under his tutelage and guidance.

In simple terms, Ubaghs wants to make the real estate market ‘accessible’ to millions of people, and ‘unlock’ the liquidity that is trapped within the industry due to the way it is designed and operated.

On their website, Propchain declare that they are on a mission to provide the real estate industry with resources, technology, and market intelligence to digitise the entire value chain, stimulating bottom-line results and immutability in a socially responsible manner.

CNME managed to secure an exclusive interview with Ubaghs, and it was difficult to ignore his unwavering belief in Propchain during our exchange – and it was hard not to be convinced and swayed by what appears to be a transformation that will enable more people with accessible to the real estate market.

Ubaghs believes that developers and government bodies need to be more proactive in terms of fostering an environment where we are building for the better on accessibility and immutability to crucial data, such as ownership and due diligence.

Ubaghs began a wide-ranging and in-depth conversation by outlining some of the factors that led to the inception of Propchain.

Frustrated by the lack of accessibility within the real estate marketplace globally, there was a strong belief amongst Ubaghs that their needed to be an ‘Amazon’ within the industry and that fractionalisation was the best way forward.

“I’ve been following the tokenisation movement since 2015, and I always had an unwavering belief in the fractionalisation of certain markets that were traditionally inaccessible for certain types of investors. It was only later that I found out that this particular principle is not necessarily the most valuable part of the digitalisation of a certain industry, but that was the initial belief. Why is there no Amazon for the real estate marketplace where you can scroll around and select a property, or a portion of a property in a high potential growth market anywhere in the world? We have been in real estate development for the last 7 years and I think a common theme that we have always encountered is where do you find the right investor, and where do you start investing,” said Ubaghs.

Ubaghs said that the regulatory environment in many developed and mature markets have inevitably made digitalisation within the real estate sector difficult, but he conceded that favourable regulations and frameworks in certain locations, such as Dubai, represent huge opportunities.

“I think as a real estate investor you’re always so closely tied to your local area because you know that particular market inside and out. However, I think we are at a stage in the cycle where returns are lower than ever before, and regulations are making it harder than ever to make money, especially in a market like Europe, but on the other hand we are also involved in real estate markets that thrive hard. Dubai is a perfect example of this, and there are other huge opportunities in different places globally when it comes to the real estate market. That being said, it requires a lot of knowledge and effort for a regular investor to capitalise on these opportunities. We started to build the concept of fractionalisation, and began tokenising real estate propositions from around the world. As a real estate developer, we already had operations globally, so we had connections in Dubai, and in other markets, so essentially, we had our fingers in multiple pies – and we had the perfect canvas you could say to test this technology out,” said Ubaghs.

Ubaghs said when he starting examining the market much closer in terms of competition, he quickly realised that many other competitors were always lacking a certain component, and didn’t have all the moving parts synchronised.

“When I started to explore the market competitors in this space, and maybe using the word competitors is wrong, because I strongly believe that everybody that is building concepts in this new movement is not necessarily a competitor, because the market is large enough for everybody. I think what became evident was that a lot of businesses were always missing a certain link. They either had great knowledge of the technology, but not enough on real estate, or they had an intrinsic understanding of real estate, but were missing the knowledge of the technology. For us, when I noticed that, and coupled with our exposure in both real estate and blockchain technology then it was a no brainer for us. We started to build the basic concept in order to start digitalising these opportunities on a platform where they can actually be traded amongst interested investors,” said Ubaghs.

However, Ubaghs quickly discovered that his approach wasn’t necessarily going to drastically change the market in the way he expected.

“There is so many factors coming into play when you are trying to digitise an industry that has never been digitised. The front end is maybe investing in a fraction of a real estate asset, but there’s such a backend behind that, so where does the data live? Today, data lives in very isolated frameworks all around the world. Dubai Land Department is one, but if you are looking at Mexico, there’s a very outdated land registry history, and if you start looking at Europe, there’s a bucketload of outdated land registry history, so how does an investor in the front end know that this property is actually owned in real-time by the actual platform? We eventually came to the understanding that by just offering a digital proposition in the front end is not what is going to change this industry, and just by fractionalising and tokenising wasn’t going to be enough,” said Ubaghs.

Ubaghs said that quite frankly their initial approach was never going to create the liquidity that everyone is pursuing, because liquidity stems from a globally recognised framework.

Ubaghs said that in order to ‘unlock the liquidity’ then it is absolutely imperative that a global framework is designed to accelerate this movement.

“If you start looking at the digitisation of securities like treasury bills then you’ll see that the reason it has been successful is the fact that there is clear infrastructure all around the world that is recognised by all stakeholders. For a private market, like the real estate sector then that type of infrastructure is not present, yet. That was the realisation and stark reality that we got from building out the initial concept, it became very clear that if we want this to succeed, and we want to unlock that liquidity that everyone is preaching about by selling fractions of real estate assets then we need infrastructure. You need several layers to this framework and you need land registry’s that work on one standard, and you need a land registry that is on the chain, so that every single country that is issuing digital real estate, or fractions of real estate has an infrastructure that is globally recognised,” said Ubaghs.

Ubaghs added that on top of all this infrastructure is the need for the facilitation of a data layer.

“On top of all of this you need a data layer, you need to determine how the data goes from an off-chain infrastructure to an on-chain infrastructure, in order for businesses that actually offer this like ourselves have a platform that can always have the data accurately rat any single moment of the day. All of this brought us to the realisation and subsequent vision that if we want to do this right then the only way to do this right is by digitising the entire value chain, otherwise tokenised real estate simply doesn’t work,” said Ubaghs.

We all know that it is human nature to resist change, and the powerbrokers within the real estate market were not immune from the feeling of resistance towards the digitalisation of their industry.

Ubaghs conceded there the reception towards the digitalisation of the global real estate market has been somewhat of a mixed bag, but began by highlighting the businesses that have been positive towards them.

“There certainly has been mixed feelings, but I can explain to you why. First of all, the people that are really positive regarding this movement of digitalisation are businesses that have a business model that is more focused and geared towards data verification, and they want to be part of this, and are acutely cognisant of the fact that this is something that can really drive what they are doing in a much more advanced way, and could see their costs drop significantly. For example, we are working together with EY, which is doing all of the auditing on the tokenised securities that we issue. Thus far, they have been generally very positive about what we are doing – and other auditors such as Deloitte and KPMG are very positive about the tokenised era, which is logical for them because they have a lot more efficient access to data,” said Ubaghs.

Ubaghs stated that he sees resistance from businesses operating in valuation and speculation, claiming that their business model is under the threat of becoming obsolete as a result of digitalisation.

“I do see considerable resistance from valuation companies, who are concerned about their business model because when data starts flowing in a more accurate and less fraud-sensitive manner then it will naturally drop the need for speculation and the valuation that they put on properties. However, at the same time they don’t want to say no either because they are very aware of the fact that they need to keep advancing and evolving as a company, and want to be part of things like pricing algorithms that use AI technology. We also see resistance with notaries, because you can really outplay them by leveraging the capabilities of smart contracts. Dubai is a great example of smart contracts and the vast majority of transactions done by the government in Dubai is on the blockchain,” said Ubaghs.

Ubaghs also outlined how he has seen resistance for businesses operating in due diligence.

“We’re seeing a big shift, and I think there is a reluctant realisation amongst these companies that over the next 5-10 years there might be no necessity for them any longer, and they really could be left out of the equation. There’s also resistance from due diligence firms, especially when you are looking at large institutional developments. If you’re spending months and months on due diligence on a project that needs to be sold at completion, and then the buyer comes in and spends 3 months on due diligence then that inevitably means there is three months of dead apital. At the same time, you’re spending around $500-750,000 on average on due diligence fees, which is just crazy, I mean you’re just going nowhere. There’s going to be resistance because essentially with the access to the right data we can settle that due diligence in 10 minutes at the fraction of the cost currently,” said Ubaghs.

As referenced throughout this discussion, Propchain have enjoyed remarkable success over the last number of years, so much so, that they are now poised to become the market incumbent when it comes to tokenised real estate globally, with the company confident of tokenising $200m by the end of 2024.

There are a number of factors that have led Propchain to this position, and one of these according to Ubaghs was the establishment of a tokenisation factory.

“The front-end technology that we have built over time is the tokenisation infrastructure, such as the smart contracts that are able to issue security tokens that are backed by some form of security. With our particular proposition, it is generally our debt securities that are collateralised by real estate assets. However, we have established our own tokenisation factory, which we use both for our own purpose as well as external parties that basically rent our technology. We do most of the hosting, and that has been quite successful, and we have close to $80m of tokenised real estate, and there is another $60m in the pipeline. We’re on the verge of taking the No.1 position when it comes to tokenised real estate. The market incumbent currently has around $120m, but we have set ourselves the target of surpassing them by the end of this year – and that’s a great example of what we have been able to accomplish over the last few years through our concepts,” said Ubaghs.

Ubaghs said that another key focus area for Propchain was in relation to the credit marketplace, and explained the term ‘digital mortgages’ in more detail.

“Undoubtedly, a key focus for us has been the credit marketplace, and we are really looking at building an opportunity for people to utilise the traditional leverage they would be able to get from a bank. We have built the infrastructure for collateralisation, so people can use the tokens and the fractions of a real estate asset that they bought as the collateral for what we call digital mortgages. This enables people to effectively scale their portfolio on the basis of leverage,” said Ubaghs.

One other key differentiator for Propchain according the Ubaghs was its ‘hybrid’ approach to the Web 2.0 and Web 3.0 communities.

“I think a very unique thing that we have done compared to what other companies have built in this space is the fact that we like to build in what we call a 2 and a half manner. The Web 2.0 crowd is essentially every single investor that is competent and accustomed to digital investing, but at the same time they have no affiliation with blockchain, or wallets. Then you have the Web 3.0 community and they are blockchain native, and they are using blockchain and De-Fi applications. We are focused on the mixture between those two communities, and we build in a very hybrid manner, which means we are not excluding the Web 3.0 community, but we realise that the volume of that community is too small now for a business concept like ours to succeed,” said Ubaghs.

Ubaghs concluded what was a wonderfully engaging, fascinating and candid exchange by outlining how the verification process when it comes to land registry at this point had the most impact in the digitalisation of the real estate sector.

He also added that the creation of globally recognised rules, regulations and frameworks would pave the way for the acceleration of the digitalisation of the real estate industry.

“I think what has made the most impact thus far in the digitalisation of the real estate sector is the layers of verification that we will see in registry, and I think that’s where most of the sensitivities reside in this market, but at the same time I think it is the fundamental cornerstone for a private market asset like real estate to live a digital life. I think the biggest advantage that we will see in terms of the digitalisation of the industry is that real estate can start living a secondary life. What I mean by that is the fact that it can start living a life in decentralised finance, but also in their daily finances. If you look at the current volume that is trapped in terms of equity in real estate assets around the globe, if you could unlock that then it would lead to a whole new financial spectrum opening up. We need to get to a point where we see global recognition and equality in frameworks, and that really is the next stage. That will really change the way we invest, trade, manage and actually finance the assets behind it,” concluded Ubaghs.