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Tokai Tokyo, Tosei to tokenize Tokyo real estate rental income

Tokyo Skyline property

Tokai Tokyo Financial Holdings and real estate development firm Tosei have partnered to offer digital securities backed by the rental income of office buildings in Japan, a Nikkei report said. 

Tosei is a real estate firm based in Tokyo and owns about 102 properties in the Japanese capital. During the six months ended May 2020, Tosei had revenues of ¥2.7 billion ($25.2 million) from its rental business. Rental income from buildings it owns is just one of Tosei’s income streams. The revenues accounted for 6.1% of the company’s total, but the rental profits represent 48% of the company’s operating profit for the six months.

The proposed digital securities will be listed on the iSTOX blockchain-based exchange in Singapore in August. The first real estate asset to be tokenized is a billion-dollar property of Tosei in Tokyo’s metropolitan area. 

Tokenization projects in real estate often involve converting all or part of a building’s ownership into tokens via a special corporation that owns part of the building. This enables investors to buy tokens that represent fractional ownership of the building. 

However, it appears that Tosei is adopting a different model and is tokenizing the rental income. 

While not explicitly mentioned for this case, blockchain tokens have the potential to be programmable. For example, they could be coded to feed in information such as occupancy rate, lessor, maintenance status, and other real estate details, which might influence the price.

The issuance, custody, and trading of the digitized securities will be handled by iSTOX, which has been approved by the Monetary Authority of Singapore (MAS) as a capital markets service provider. Tokai Tokyo has a $5 million investment in iSTOX. 

In this case, investment related to a Japanese property is being listed on a Singapore exchange, yet Japanese investors cannot open an iSTOX account due to regulatory restrictions, Nikkei said. 

Last month, Ledger Insights reported that Tokai Tokyo acquired 33% of blockchain tokenization firm Hash Dash Holdings. iSTOX parent ICH X TECH also has the same amount of interest in the firm. Nikkei had then reported that Hash Dash, iSTOX, and Tokai Tokyo were working on tokenizing Japanese real estate and list the securities on the iSTOX exchange.

Among other similar projects, Securitize has launched a real estate crowdfunding platform using digital securities. Tokyo-based Lead Real Estate was also exploring blockchain for funding condominium and hotel projects ahead of the Japan Olympics.