Unlocking a new era for investment in real estate

Earlier this year, in a groundbreaking move, Alexis Nicolaou and Christiana Aristidou, two prominent figures on the buzzing Cyprus blockchain scene, joined forces with Greece-based marketing firm Zoltar Agency.

Together, they have established FuturEstate Alliance, a real estate tokenization platform that aims to unlock a new era for investment in real estate and more. GOLD met with the duo to discuss the opportunities that tokenization presents and the challenges that lie ahead on the path to its widespread adoption.

“We feel that once the first use case is announced, it will then be a matter of FOMO (fear of missing out), especially in Cyprus. We have no doubt that tokenization simply makes good financial sense,” Alexis Nicolaou asserts with conviction. Seated opposite him, his business partner, lawyer Christiana Aristidou, gives a nod of endorsement. In March 2023, Nicolaou and Aristidou partnered with Greek marketing firm Zoltar Agency to launch the real estate tokenization platform FuturEstate Alliance. Distilled to its essence, tokenisation dissects an asset, whether an imposing high-rise building overlooking the Limassol seafront, a marvellous marina, or a renewable energy park, into digital tokens that embody a fractional percentage of the original property. By fragmenting a property into smaller pieces, tokenisation emancipates the real estate market, paving the way for a broader range of potential investors. The impregnable blockchain is the bedrock of tokenisation, providing a secure and transparent platform on which to store and transfer tokens, while smart contracts serve as the crux: self-executing agreements that steadfastly automate the context of the contractual conditions, lowering transaction costs. Put together, these technologies remove the impediment of bureaucratic and private intermediaries that have traditionally impeded small-scale investors from participating in the market. Indicatively, Real Estate Investment Trusts (REITs) have traditionally offered a similar proposition but are tailored for deep pockets and entail huge up-front fees.

On October 31, 2008, an enigmatic figure, singularly known as Satoshi Nakamoto (potentially a group of ingenious minds; the jury is still out) released the Bitcoin Whitepaper, kindling the idea of bitcoin and blockchain within human consciousness. Aristidou, who was studying technology law at Queen Mary University of London at the time, witnessed this groundbreaking concept as it trailblazed through the hallowed halls of academia. Since then, she has woven a professional tapestry of remarkable achievements, including serving as the Head of the Cyprus Delegation to the ISO TC/307 Committee, as a member of WG6 on blockchain use cases and WG-3, a project leader for developing standards on the taxonomy and categorisation of smart contracts and a co-founding member and Vice-Chair of the Cyprus Blockchain Association, which recently merged with Cyprus Blockchain Technologies. In 2019, after more than two decades at her family law firm Democritos Aristidou LLC, where she headed the international business and technology department, she founded Christiana Aristidou LLC, and empowered the “Hybrid LawTech Firm”. This is why Nicolaou jokingly dubs her the “Mother of Blockchain in Cyprus,” a playful moniker that brings a modest blush to her countenance. “I just smile when I hear it,” she confides.

Over the years, real estate has proven to be a bastion of stability, offering steady returns to investors. According to a report by Deloitte Cyprus, despite the tempestuous ramifications of the pandemic and the termination of the Cyprus Investment Programme, the housing market has enjoyed a veritable buoyancy driven by a combination of strong domestic demand and the resurgence of foreign investors. Even in the face of the current inflationary pressures, the market exhibits resilience. However, it remains inaccessible to small investors armed with a cache as little as €1,000, the chance at prosperity forever eluding their grasp, while the pursuit of project financing is confined to traditional financial institutions. And, obviously, extracting capital from banks in the current interest rate environment is a disheartening proposition!

“Tokenisation,” Nicolaou explains, “opens up the market to a new pool of liquidity; the smaller investor is of immense importance, especially now.” What is more, by leveraging the borderless reach of the Internet, tokenisation opens up real estate investment to denizens of the crypto world, widening the pool of potential investors even further. “So, there are massive benefits for both the investor and the owner of the project by offering an alternative option for funding without the need to engage intermediaries,” he adds.

By all accounts, Alexis Nicolaou is a blockchain evangelist. With a career spanning a quarter of a century in C-suite roles in various industries, from media to finance to accounting, he currently heads Distributed Ledger Technology Services at Grant Thornton (Cyprus) Ltd. Until recently, he was also the Managing Director of Block.co, a blockchain offshoot birthed in the intellectual crucible of the University of Nicosia – famed as the progenitor of pioneering courses on bitcoin and blockchain. He is also a Board Member of Cyprus Blockchain Technologies, which further anchors his standing within the domain. There is no doubt that Nicolaou and Aristidou are torchbearers of the technology, driven by fervent faith about the transformative powers of blockchain.

“Blockchain,” Nicolaou says, “enables Web3; the web of reading, writing and, more specifically, owning.” Web3’s vision of a new and decentralised digital world that endows more control, ownership and value to the user is viewed by many in the industry as monumental for the entire socioeconomic fabric. “Anything that creates value is of immense importance, and that’s what we are witnessing with tokenisation,” Nicolaou adds, with unwavering certainty.

Aristidou gingerly rests her elbows on the conference table. “Speaking as a lawyer,” she says, “tokenisation also streamlines a wider range of legal arrangements, which allows smaller investors to take bets in a way that suits them. Some people think that’s easy, but it’s not.”

The process of fragmenting a luxury tower in paradisial Bali follows a distinct set of legal procedures that are juxtaposed against the tokenisation of commercial office spaces in the bustling confines of Berlin. The lack of a consistent legal and regulatory framework that governs the real estate market presents a challenge for companies like FuturEstate Alliance. “You need to be very careful how you structure the agreements and offering, because if you offer a token in a country that doesn’t allow that particular investor class, both you and your client will suffer damages,” Aristidou stresses. Nonetheless, Nicolaou puts forward an intriguing twist: despite the prevailing lack of legal interoperability, tethering tokenisation to a legal framework – specifically, within securities laws – gives the enterprise an aura of credibility, instilling a sense of confidence in the minds of investors. This unique attribute stands in stark contrast with the volatile nature that permeates the ungoverned domain of cryptocurrencies. Nicolaou speaks from firsthand experience since, when engaging in discussions about tokenisation with people who have a limited grasp of the inner workings of the crypto world, they appear to fear that tokenisation will breed the same price fluctuations that has plagued its volatile counterparts. But there is a crucial difference – these tokens, unlike cryptos, are backed up by tangible assets (governed by legal frameworks). So, someone investing €15,000 in a digital token representing a fragment of a luxurious tower will not experience the cruel game where the market takes crypto assets onto a spontaneous rollercoaster ride to the basement of value.

March 2023 saw another transformative milestone, as the EU’s DTL Pilot Regime sprang to life, heralding a new era for digital securities platforms. This initiative seeks to carve out a sandbox to fill in regulatory gaps, particularly in the Central Securities Depositories Regulation (CSDR) and the Markets in Financial Instruments Regulation (MiFIR), and break down the barriers preventing the decentralisation of the market infrastructure. These venues will manifest themselves within the Web3 space, assuming the form of dApps (decentralised applications) and will run on the blockchain beyond the scope of a central authority. As the gates of these platforms swing open, they will usher in a new world for investment in real estate projects (again, smaller investors will benefit) and the implications will reverberate through the diversification of capital sources, breathing new life into the intricate dance of demand and supply. The expectation is that they will also unlock the price discovery and valuation of real estate assets, reflecting with unprecedented accuracy the ebb and flow of market conditions. Real estate assets, once captive within static conditions, will now be freed by the dynamism of trading. Once again, flexibility and liquidity will unleash a kaleidoscope of possibilities for investors and sellers alike.

Despite its newly founded status, FuturEstate Alliance is already in discussions with eight projects worldwide. While they remain guarded about divulging explicit details, they offer some crumbs as to the nature of these projects: high-rise buildings, marinas and luxury villas.

I ask, “So, what’s the tipping point? When will tokenisation become a widespread practice?” Nicolaou says resolutely, “It’s already tipped. It’s just the case of people in Cyprus finding out a bit more about it and it’s up to us to educate them. And, it is encouraging that government institutions are already engaging with the technology, publishing two tender offers with blockchain as the underlying technology.”

The younger generation, imbued with an innate fluency of cutting-edge technologies, stand poised in the vanguard of tokenisation. After all, they are immersed in Web3 both as consumers and professionals. Nicolaou recognises that targeting these individuals will serve as the linchpin for the widespread adoption of this transformative technology. For her part, Aristidou mentions that the harmonious interplay between the three competencies comprising FuturEstate Alliance – business, legal, and marketing – will also be instrumental in unlocking market adoption. According to a report by consulting firm Research Nester, the global real estate tokenisation market is expected to reach US$2.8 billion in 2023, registering a whopping Compound Annual Growth Rate (CAGR) of 59.7%. Another report from market research firm Allied Market Research predicts that the market will reach US$4.2 billion by 2024. Indeed, FuturEstate Alliance would need to confront the cuts and bruises of breaking through this particular wall but the “first mover” rule applies in a market that appears to be on the precipice of exponential growth.

(Photos of Alexis Nicolaou and Christiana Aristidou by TASPHO)

This interview first appeared in the July edition of GOLD magazine. Click here to view it.