Real estate investments are traditionally associated with square meters, rental and long payback periods. But new technologies are gradually changing this area as well. A new format has appeared on the market – utilitarian digital rights (UDR). This is a tool that translates familiar property rights into digital form and opens the way to the creation of digital certificates (DC).
Now the UDR mechanism is just being formed, but it is already of interest to developers and investors who are looking for new ways to monetize real estate. Especially promising is the use of UDR in the field of HoReCa – hotel and apartment complexes. In fact, the UDR records who has the right to live in apartments in the future. This is a new type of investment product – an asset for future living with profitability.
UDR and DC: how it works
UDR is not a “new cryptocurrency.” This is a new asset class that is regulated by law and released on platforms licensed by the Central Bank. Its peculiarity is that it turns ordinary property law into a legal digital record. Moreover, UDR can be an investment tool themselves, or they can act as a bridge to entering the classic financial market. The main goal is to create a digital certificate on its basis – the digital security that can already circulate on the stock exchange. It is here that innovation appears: developers have learned to transform the right to stay in a hotel into UDR, and then into a digital certificate that can be bought or sold on the stock market. Thus, DC is a way to reach 15 million private investors who are present in the stock market. In fact, a “night at the hotel” becomes a stock exchange asset. Legally, this is enshrined in federal law No. 259-FZ of 2019 “On attracting investments using investment platforms and on amending certain legislative acts of the Russian Federation.”
Anyone who buys a digital certificate on the exchange will receive the entire set of rights assigned to the original UDR, for example, to stay at a hotel. If earlier such a right was “closed” – it could be exercised by the end user only (guest or tour operator), now it has become convertible. Investors can buy these digital assets in order to get income: make money on the growth of their value or resell in season.
Earlier, for example, a project was launched to tokenize the grain harvest. Now the HoReCa sphere is among the pioneers. LLC UK “Anterra,” the management company of the network of hotels and thermal complexes, has begun the production of DC. In fact, this is an opportunity to invest in future rent without buying the property itself. Similar experiments with tokenization are launched abroad.
Why investors are interested
The emergence of UDR and DC opens up new opportunities for private investors. This tool has undeniable advantages. First, availability. Previously, real estate investments often required large amounts of money and were not very liquid. Now there is a chance to enter this market with small amounts of money and at the same time have an instrument that can be sold or transferred as easily as a bond.
Secondly, DCs are transparent: all rights are digitally fixed, they cannot be faked or lost, and information about the owner and conditions of circulation is always available.
Thirdly, the economics of profitability here are arranged differently than in classic financial products. The investor earns not on bank interest, but on a discount to the cost of living. Hotels have low variable costs per guest, that allows to lay a high discount when selling DC. For example, if an investor buys a UDR at a price equivalent to 9 thousand rubles per night, and after the hotel opens, the market price of accommodation will be 15 thousand, then upon resale he can earn up to 60% profitability. Even if you hold an asset for two years, the average yield can remain at 30% per annum – which is noticeably higher than traditionally in real estate (about 15%).
Fourth, moderate risks. In the worst case, the investor will simply get paid rest – and not lost money, as in speculation in the stock market. Alternatively, he will be able to sell the DC back to the issuer with a 15% margin.
A developer or hotelier benefits. DCs allow to reduce the financial burden during the construction phase. The financial burden is transferred to the operating period, reducing the current costs of project financing with high rates. In return, investors get access to the future margin of the hotel at a discount, and the hotelier obtains additional opportunities for the development of the project.
What an investor needs to consider
Like any investment instrument, DCs require attention from the investor. The first thing to look out for is the underlying asset itself. Digital right is always “tied” to something real – be it hotel accommodation, a barrel of oil or a gram of gold. The profitability and stability of an asset is determined by the dynamics of the underlying market.
The second important point is the reliability of the issuer. Before buying, it is worth checking who issues the digital certificate, what objects or services are behind it, what is the company’s reputation and how transparent its terms are. Do not invest in the unknown and untransparent company.
And finally, the universal rule of the investor: do not invest in what you do not understand.
Even the most promising tool can turn into losses if you do not understand its economy. Therefore, it is necessary to at least basic understand the UDR and DC.
The first step towards an ecosystem
Today, UDR and DC are just beginning their journey in the Russian market. Gradually, they will turn into a standard tool with which investors, developers and individuals work. Digital financial assets (DFA) in Russia have already passed the first stage – the market has mastered debt instruments, and this segment has practically exhausted itself.
The next step is the tokenization of real assets, that is, the transformation of rights to physical objects and services into digital form. This is exactly what is happening today: hotel accommodation, rent, warehouse capacity or agricultural products can become full-fledged investment assets. Unlike many countries where tokenization is limited to stocks and bills, we create conditions for working with real assets. There is no reason why markets won’t take advantage – barriers to entry are becoming minimal and transparency and investor rights protection is growing.
By Alexander Tertychny, founder and CEO of the Green Flow hotel chain