With the introduction of the plan to buy and sell housing by the square meter on the stock exchange, utilizing blockchain technology for this scheme could offer advantages over its traditional counterpart.
Becoming a homeowner in Iran has always been one of those aspirations that can significantly enhance the quality of life. Given the high inflation that has particularly affected the economy recently, paying rent at the end of the month can rob individuals of their sleep. Meanwhile, housing prices have risen daily, making home purchases far more difficult than in previous years, and for some lower-income households, it may seem impossible, even in their dreams. Recently, however, the topic of selling housing by square meters has emerged. While it may not have the allure of a ready-made home, it seems like a good option for those looking to invest a portion of their capital wisely and protect their wealth. Moreover, with the passage of time and by purchasing housing bonds, one might even achieve the dream of homeownership.
The plan for buying and selling housing by the square meter on the stock exchange and purchasing square meter shares of land has been proposed for a long time but has never come to fruition. However, it now seems that the Commodity Exchange’s decision to implement this plan is serious. The stated goals for implementing the sale of land by the square meter include controlling inflation, attracting liquidity in society, and increasing affordable housing production. As indicated before the implementation of housing futures sales, having a stock trading code is mandatory for purchasing housing by the square meter. Applicants must register in the Sejam system and then at a brokerage firm to conduct transactions. Even now, some real estate agents sell housing by the square meter, but its availability in the Commodity Exchange could help regulate the process.
Dimensions of Tokenizing Real Assets
On the other hand, with the emergence of new technologies such as blockchain, innovative methods for traditional practices have gained attention. One of these practices is the tokenization of real assets. Tokenization refers to converting assets into digital assets on the blockchain. Through this method, any asset, such as housing, vehicles, gold, or even a piece of artwork, can be divided into smaller parts or digital tokens on the blockchain, with each part assigned to a separate owner.
Utilizing blockchain technology to sell housing by the square meter could also offer advantages over its traditional form. For example, it allows for greater liquidity; each token has a unique owner, ensuring that two people can never own the same token. This minimizes legal issues such as fraud and selling the property to multiple parties. Additionally, there are no restrictions on selling portions of property, allowing for purchasing even smaller units than one square meter of housing.
What Are the Benefits of Tokenization?
The tokenization process requires payment processing to replace a credit card or account number with a token. The token created in this way serves no purpose other than to enhance security and is not linked to a user account or individual.
In tokenization, sensitive information is protected within a virtual vault, enabling organizations to transfer their data securely via wireless networks. For tokenization to be effective, organizations must utilize a payment gateway that allows for direct payment processing or credit card transactions to store sensitive data securely. Tokens are linked to the main source of transaction information, which exists on the blockchain as a decentralized ledger, ensuring ownership of an asset.
Tokenization can improve liquidity, simplify financial transactions, and help guarantee ownership rights of assets. Tokenizing data in a non-blockchain context is a barrier against hackers accessing cardholders’ information and assets, providing better security than older systems where credit card numbers are stored in databases and freely exchanged over networks.
With blockchain tokenization, the need for tokens to be traded in traditional investment markets is eliminated, reducing many lengthy processes associated with traditional securities investment or large asset purchases. For instance, purchasing a token representing real estate ownership is a much quicker process than buying a non-tokenized property.
“The nature of blockchain technology means that if you buy one or more tokens, your ownership of those tokens is locked in, and no other entity can change that.” –Andres Zunino
CEO of ZirconTech
A More Liquid Market and Greater Investment Opportunities
Moreover, eliminating investment intermediaries reduces overall costs and saves time. Additionally, tokens are accessible to a much broader audience, allowing even those who do not intend to make large investments to participate. Consequently, the market can become more liquid, enabling users to gain more investment opportunities.
In addition to all these advantages, tokenization can enhance the security of transaction histories associated with the tokens. For example, suppose someone wants to question the ownership of a token. In that case, the blockchain stores a record of all related transactions, allowing them to confirm or deny ownership with documented evidence.
In this context, we spoke with Alireza Sadeghi, head of the Market Surveillance Department at the Commodity Exchange Organization, regarding the sale of housing by square meters and the potential use of tokenization for real estate.
Sadeghi commented on the current status of selling housing by the square meter in the Commodity Exchange, stating that given the measures taken to facilitate the sale of housing by the square meter in the Iranian Commodity Exchange, it has been decided that this will be conducted in the form of standard building futures contracts. Therefore, to initiate housing futures transactions in the Iranian Commodity Exchange, it is necessary to amend the executive instructions for standard futures transactions and obtain approval from the Islamic Finance Committee of the Securities and Exchange Organization. To this end, the Islamic Finance Committee of the Securities and Exchange Organization has discussed and finalized the matter in terms of its jurisprudential aspects. He noted that drafting and revising these regulations are underway within the Securities and Exchange Organization. Once the necessary amendments are completed and approved by the Board of Directors of the Securities and Exchange Organization, the conditions and infrastructure required for market participants in the housing sector will be provided, allowing them to engage in pre-sales or financing in this area.
In response to a question about how buying and selling housing in this market will operate once the decision is finalized, the head of the Market Surveillance Department of the Commodity Exchange stated that the mechanism for selling standard housing futures contracts would involve the applicant for pre-sale and financing in the housing sector, after acceptance, proceeding to issue and offer standard futures contracts to the public, allowing buyers to purchase these contracts from the issuer.
Creating a Secondary Market for Housing Contracts
Sadeghi addressed whether a secondary market for housing contracts could be created where transactions could occur between individuals holding these contracts, stating: “Given the potential for a secondary market for these contracts, buyers can sell these contracts in the secondary market or hold them until maturity. If at maturity the holders possess the minimum required contracts for the delivery of housing, the issuer will transfer the relevant property to them.”
He elaborated on the benefits of the housing sale by the square meter initiative, explaining: “The establishment of a market for standard housing futures contracts has many advantages for the general public. By purchasing these contracts, people can buy the housing they need at a specified price and hedge their risk against fluctuations in housing prices. Additionally, individuals looking to invest in the housing sector can enter and operate within this market. This can redirect many idle funds in society toward this market. This market is also very suitable for active participants in the housing sector, and companies engaged in construction, allowing them to secure financing from this market instead of relying on the banking network. Another advantage this market offers to construction professionals is the assurance of housing sales since, by selling these contracts, the seller commits to delivering the housing upon completion of construction. Another advantage of selling housing in standard futures contracts is obtaining the necessary guarantees from the seller for delivering the housing at maturity.”
“Everything will be tokenized, and blockchain will transform into fundamental blocks for the exchange of value.” –Gun Gun Febrianza, Computer Engineer and Blockchain Activist
Tokenizing real estate assets
But what role do new technologies play in this? Considering that leveraging blockchain technology, the optimal method for selling fractional and square meter properties could be through tokenization, Sadeghi explained whether the Securities and Exchange Organization has plans to tokenize real estate assets: “The use of modern technologies and blockchain in this area, especially in the sale of housing futures in the form of tokenization, has its complexities, and all aspects of this work must be thoroughly examined and evaluated. Additionally, this topic requires certain prerequisites, including obtaining necessary permits from relevant agencies and institutions and formulating and approving specific regulations and executive instructions. Moreover, considerations related to supervisory matters and the manner of monitoring and overseeing this market must be considered.”
He responded to the question of whether a proposal for tokenizing the desired real estate within the framework of the square meter sale program would be considered, especially in light of the advantages of blockchain technology, stating: “If a proposal in this regard is presented, all mentioned aspects must be scrutinized. Given this topic, the current approach focuses on establishing a market for standard housing futures contracts using the trading platforms of the capital market under the supervision of the Securities and Exchange Organization.”
