STO: Real Estates

[LionFlyer]

Recently came across this topic after someone at work mentioned it and we were discussing the viability of this instrument in the local context. 

https://www.businesstimes.com.sg/propert...isation-20

Given the most people invest in the actual assets, and if they want exposure to different asset class that are securitised, they can always go for REITs, would there be a market for it? 

I note that MAS currently restrict the trading of STOs to accredited investors, and corporates/fam offices. This limits the access of these assets considerable, hence liquidity. 

What are the views of VBs here?

[weijian]

In securitization, counterparty and trustee used to be neglected but turned out to be key risks. So in my limited knowledge, I assume counterparty and trustee risks are key (but frequently ignored) in tokenization then?

It will be good to let others try out the new technology first and have them pay for the lessons. We just learn (FOC) along the way and when the technology is mature enough for mainstream adoption, there is still plenty of time to benefit from it.

[LionFlyer]

In securitization, counterparty and trustee used to be neglected but turned out to be key risks. So in my limited knowledge, I assume counterparty and trustee risks are key (but frequently ignored) in tokenization then?

It will be good to let others try out the new technology first and have them pay for the lessons. We just learn (FOC) along the way and when the technology is mature enough for mainstream adoption, there is still plenty of time to benefit from it.

Thanks. I do not profess to understand the issue of counterparty risk and I will read up. My layman understanding is blockchain helps to some degree to mitigate this, but probably the exchange itself is a risk.

One question I have is whether there is any corporate interest from the property developers in this space. Ultimately, this is disruptive to their business models.

[weijian]

hi Lionflyer,

Counterparty risk isn't too hard to understand. Always been there since trading first started in the Mesopotamia-Egyptian basin. Here is the Google's definition:

Counterparty risk is the probability that the other party in an investment, credit, or trading transaction may not fulfill its part of the deal and may default on the contractual obligations.

During GFC2008, counterparty risk came into the full limelight. Noticeable blow-ups were AIG unable to pay out the CDS (credit default swaps) it insured for, to investors who bought them to bet against the subprime mortgages. On a local context, minibonds (if it still rings a bell) were issued by Lehman Brothers - the principal from the "bonds" (they weren't bonds) were used to purchase insurance against default with collateral (probably Lehman Bro own investments). Investors' coupons were paid from the CDS premiums. When Lehman went bankrupt, it triggered an early redemption of the principal and since the market was in crisis, the collateral was worthless and so investors lost their principal.

In its lowest form, for folks whom used to soccer bet with bookies (me inclusive), it simply means whether the bookie will run road or not if we win - either they don't honor our winnings or the winnings we have with them are gone due to the police raiding them.