Did Dubai just tokenize itself into ruin? How this tokenisation ‘opportunity’ spells the end of the Dubai real estate bubble.

It’s at this late stage of the real estate cycle where things really start to get interesting.

There’s so much going on.

Maybe it’s the announcement of yet another highest, tallest, biggest something.

Or maybe… it’s of the world’s most famous celebrities announcing a new meme coin or non-fungible token (NFT)?

Or maybe… it’s the announcement of some wacky artwork selling for an astronomical sum.

Or maybe… it’s something else entirely. You can never know in advance but here’s a headline that jumped out at me this week: Dubai launches first licensed tokenized real estate project in MENA region.

When I see or read anything so late in the cycle, about Dubai and its primal urge to boost its real estate sector in literally any way it can think of, I pay close attention.

So, let’s look at what’s going on here with this ‘tokenization’ project.

Tokenization of real estate is a way that large and established real estate developments can be broken up into fractions of much smaller digital lots which are then sold to investors who otherwise may not have the funds or opportunity to buy the entire asset.

It’s a bit like breaking up the ownership of a company into shares. In this case you can buy a digital share – or tokens – of a real estate development quite easily.

This way, property investors can easily buy and sell these tokens on an exchange.

What underpins the entire venture is a blockchain, which provides a clear chain of custody of precisely who owns what, how much it’s worth, and when they purchased it.

Think what is currently used today to establish ownership, a land title deed, and have part or all of that broken into many tens or hundreds of smaller land titles.

Fractional ownership of that would be a bureaucratic nightmare, not least because it would not be clear which part of the land you owned.

Where tokenization can help is to prevent fraud and proving legitimacy of your property ownership. This concept, as stated, isn’t new, and it has been applied to other assets such as fine art.

So, this all leads us to this recent announcement:

In a landmark move that reinforces Dubai’s leadership in the real estate sector and harnesses cutting-edge technologies to advance property investment, Dubai Land Department (DLD) has launched the region’s first tokenized real estate investment project through the ‘Prypco Mint’ platform. 

Zand Digital Bank has been appointed as the banking partner for the project’s pilot phase, positioning Dubai as the first city in the MENA region to adopt a licensed platform for real estate tokenization.

The above quote was from a recent Dubai Land Department (DLD) announcement on their website to officially launch the pilot phase of investment in tokenized real estate. It also meant the launch of a mobile based app called prypco mint.

As of now, the offer is open to locals, but the intention is to market it globally. According to DLD, it is estimated by 2033 that these tokenized assets will represent 7% of the entire Dubai’s real estate market.

The true benefit here is the low cost of entry, just 2000 AED (about US$550). By using the prypco mint marketplace buyers can enjoy a 50% discount on all fees (2% instead of the usual 4%) which is 100% fully licensed by the Dubai Virtual Assets Regulatory Authority (VARA). This provides full transparency and legal recourse.

Important considerations for would-be investors. The other obvious benefit is the ease with which you can transact. You actually never need to enter or visit the UAE or Dubai, as everything can be done instantly via your prypco mint app.

Say you are interested in getting involved? What’s the experience actually like? You start by creating an account and the usual log-in details. Right now, only those with verifiable UAE identity documents can apply. But let’s say you are.

Once your identity is confirmed, you are taken to the marketplace where all the currently listed properties are displayed, along with their rental status, property report, valuation certificate and other details.

From there, you engage in due diligence, run the numbers, decide if you wish to buy, how many tokens you’ll use, and hey presto. You are now a fractionalized owner of some Dubai real estate.

And, I might add, this purchase is freehold. Most of the UAE is leasehold land for 99 years. This way, as a freehold title, you are eligible to own a small portion of land that sits underneath the apartment block!

Below is a top-down view of the 2-bedroom apartment I found in the marketplace earlier. In terms of late real estate cycle developments, the ability to squeeze a lot into a little is on full display here.

I’ve circled the tokenized apartment below. One of only two 2-bedroom apartments on each floor.

So, is the next obvious step here to simply await the international roll-out of this can’t miss opportunity?

I have questions.

Like, why didn’t this come out, say, five years ago? The technology was already available and appeared to be able to be scaled up. The only thing that Dubai can offer the world is its real estate. It’s a one card trick. So, it beholds you to be very, very good at that one trick.

And Dubai is, it really does know how to market real estate and how to engage with international investors. Certainly, everything I’d expect to see and read when reviewing real estate opportunities here in Australia are all present here in the prypco marketplace.

Why announce this now when the current real estate cycle is coming to an end? My first clue as to what’s going on was in one of the brochures for the above apartment.

According to Dubai Land Department’s smart valuation, the property’s market value is AED 2,890,000. However, PRYPCO has secured a deal price of AED 2,400,000 offering approx. 17% discount or approx. 20% capital gain at entry.

So, the vendor accepted a lower valuation for this property – why? It isn’t something done during a screaming hot market. More like when things have peaked and started to falter.

But if the latter is true then it speaks to an even bigger revelation. What is the single fundamental and immutable fact that underpins the tokenization of real estate like this?

Since the Regis hotel did it first in 2018, it is this. Land prices must keep rising.

What has global real estate done since 2018? Oh, I don’t know, maybe hit historic highs? This is something that you attempt to do to squeeze the very last out of a Ponzi bubble as it’s close to bursting.

So, dear reader, think about this. What happens to this industry when land prices are falling? No-one involved in it even had to ask the question. The problem though is they are almost out of time. That’s what my knowledge of the 18.6-year Real Estate Cycle tells me.

Then there’s the issue of surrendering investor controls that, as a landlord, are at the core of your real estate investment business. By buying such tokens, I forfeit my ability to massively increase the rental yield I can attain and have no say in improving the desirability of my apartment in comparison to others in the same tower.

All this to see a few hundred dollars a month hit my prypco wallet.

No thank you.

I’m sorry to say but my takeaway is that we are about to witness the complete destruction of this industry. And it all comes down to time. DLD have simply left this too late. But have you left it too late? Too late to learn about the ‘hidden order’ of the economy?

The very reason why I can say the above to you here with such confidence?

Well, it’s never too late if you become our latest Boom Bust Bulletin (BBB) member.

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There really is nothing new under the sun. The real estate industry doesn’t need smart contacts built on a blockchain. It doesn’t rely upon splitting up ownership of land into tokens.

The real estate industry has thrived without all this before now. It will do so in the future. It all smacks of a solution looking for a problem. Should you add your name to the shortlist?

Is it the final push for those still undecided to now go ‘all-in’?

This won’t be the last real estate tokenization before the land market peak. The problem is history tells me this industry really WILL have a problem on its hands soon. One it has no solution for.

Only those who are prepared and know what to expect will survive the whirlwind that’s coming.

Make sure that is you.

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