The expansion of the real estate ST market will continue until 2025, deciphering the changes in the ST market due to the spread of assets [Digital Securities Forum 2024 Event Report Part 2] | CoinDesk JAPAN

![The expansion of the real estate ST market will continue until 2025, deciphering the changes in the ST market due to the spread of assets Digital Securities Forum 2024 Event Report Part 2

On December 12, the fourth "Digital Securities Forum" was held at KABUTO ONE Hall in Kabutocho, Tokyo. It was hosted by Japan Keizai Shimbun and co-sponsored by N.Avenue, which operates CoinDesk JAPAN.

The theme of this year is "Security Token: Time for Transformation and Growth". Since the first Security Token (ST) was issued in 2021, the market has grown significantly. However, while the total amount of STs in 2023 showed a significant growth of more than double compared to the previous year, the growth rate in 2024 slowed down compared to the previous year.

One of the reasons behind this is that the challenges of the tax system have become clear, and it took time to organize them. It can be said that the 24th year, which is in the midst of a transformation, was a year of laying the groundwork for a leap forward next year. In the 25th year when tax system reforms are realized, expectations are high for the expansion of ST to assets other than real estate.

Report on the day's events will be divided into two parts, the first part and the second part (main part).

Looking back at the real estate ST market in 2024

Panel discussion 'Development and Future Outlook of Real Estate ST' featured three speakers: Mr. Daisuke Miyajima, President of Kennedix; Mr. Hajime Ikeda, Executive Officer of Nomura Holdings and Head of Digital Company and Marketing Department of Wealth Management; and Mr. Toshinori Sasaki, CEO of BOOSTRY. The moderator was Mr. Yuki Kamimoto, CEO of N.Avenue/CoinDesk JAPAN.

The first topic is a retrospective of the real estate ST market in 2024. Mr. Miyajima describes it as the end of the 'first act' of the real estate ST.

［Kennedix President Daisuke Miyajima］"During these three and a half years, a total of 38 real estate STs amounting to 300 billion yen have been issued. Kennedix has also issued 12 STs totaling 140 billion yen, ranging from residential to hotel properties, on a considerable scale. Furthermore, the Shibuya Shonan project, our first case, was redeemed at the end of November. Being able to complete the full cycle of acquisition, operation, and sale, and returning funds to our investors, also marks the end of the first act."

It is said that the Shibuya Jinguna property was sold for an amount significantly higher than the acquisition cost. "To be honest, I didn't expect such a high return. In addition to the increase in rent for properties in prime locations, along with the increase in demand for housing due to the Corona pandemic, investor demand also increased. As a result, it turned out to be a very successful project," recalls Mr. Miyajima.

Nomura Securities handled the sale of this real estate ST. Mr. Ikeda fondly remembers it as the first case in Japan.

[Nomura Holdings Executive Officer, Head of Digital Company and Marketing Manager of Wealth Management Department, Hajime Ikeda] "We struggled with the internal system preparation, such as system compatibility. Despite being digital, I strongly felt that something like the analog 'thoughts of people involved' was necessary for the launch of new products. The fact that we were able to present an excellent property as the first project became a trigger for the next project." (Mr. Ikeda)

Kennedix's recent 12th case was an ST backed by the rental single-family home series 'Kolet'.

"The prices of condominiums in the city center have risen, and the rent has also increased significantly. As a result, there is a growing demand, especially among young people, to live in spacious houses even if they are a little further away from the city center. That's why I confidently recommend it," explains Mr. Miyajima.

Mr. Ikeda also said, 'For us, this is the first time we have handled rental detached houses as products. To cut to the chase, we were able to sell them at a faster pace than expected.'

As someone in charge of developing the platform, Mr. Sasaki positioned the project as follows.

"I think that investors are deepening their understanding of real estate ST, and in such a trend, the capacity to accept such new products has increased."

Let's broaden our perspective a little more and look back at 2024 from the sales and regulatory perspectives. Mr. Ikeda talks about the remarkable growth in online sales.

"By offering various products based on different criteria (investment standards), we can expect advancements in the sales aspect as well. New products such as 'green bonds' utilizing the characteristics of blockchain are also gaining popularity." (Mr. Ikeda)

Sasaki also said, 'In terms of distribution and ease of investor entry, I feel that 2024 has made significant progress.' In terms of distribution, the emergence of the Osaka Digital Exchange (ODX) secondary ST market is significant, and it is also significant that 'settlement dates' can now be completed digitally. In terms of ease of investor entry, the fact that ST corporate bonds have been revised to not be disadvantaged compared to regular corporate bonds is mentioned.

What are the factors driving the growth of the real estate ST market

Real estate ST has been around for 3 years. Kennedyx aims to make the real estate ST market worth 2.5 trillion yen by 2030. Mr. Miyajima said, "The basic background is that Japan's interest rates are on the rise and individual real estate performance is good. In addition, real estate ST is within the framework of a single-item security, so separate taxation can be used and we can use the sales platform of securities companies. I think these factors have contributed to the success of Act 1."

Mr. Ikeda has experienced the 'touch' of choosing a property himself in the real estate ST, and says, 'For example, it has already happened that after purchasing real estate ST backed by hotels and ryokans, I actually stayed there. I feel that we are able to provide new value to our customers.'

Mr. Sasaki reflects on the 'first act' and says the following.

"I think a certain model has been established. We have entered a phase of utilizing that model for development. For example, it would be good to have 'local production for local consumption' where local assets are bought by local investors. I think this will also lead to regional revitalization by activating regional finance."

[BOOSTRY CEO Tatsunori Sasaki] On the other hand, Mr. Miyajima discusses the challenges for the real estate security token market to further grow, and says that it is important to reexamine the meaning of data on the blockchain and consider what services can be provided as a result.

Mr. Ikeda cites the expansion of players as a challenge. "It is important to provide more attractive products through such talented people," he said. In addition, Mr. Sasaki emphasizes the importance of initiatives that leverage the characteristics of blockchain technology to directly connect with investors and increase the freedom of transactions.

Three Companies' Strategies Toward 2025

So, in 2025, what kind of strategies will be promoted for these challenges?

Miyajima is said to have prepared three measures. One is the issuance of a large number of real estate STs. Currently, 10 projects, totaling 150 billion yen, are in progress. The second is the "Customer Portal App" scheduled to be launched in February 2025. It will provide a service that allows you to list the owned STs and confirm all information. The third is further strengthening of secondary distribution.

"I want to create a situation where the desired products can be purchased right there, just like various products are lined up at the greengrocer" (Mr. Miyajima)

Mr. Ikeda envisions leveraging the feedback accumulated over the past three years from customers as a basis to drive new product development.

Real estate ST is still in a transitional period. There is still a lot of potential for the product to evolve, such as settlement in digital currency and automation of contracts." (Mr. Ikeda)

As an IT vendor, Mr. Sasaki, who expresses his desire to support the development of the ST market next year, BOOSTRY, led by Mr. Sasaki, operates the consortium-type blockchain "ibet for Fin".

"We want to increase the number of players who engage with blockchain. We believe that this will lead to the development of the market," said Sasaki.

Two Tax Reform Requests for Expanding ST Assets

The next event was a panel discussion titled 'How will the ST market change with the spread of assets in 2025?' Progmat CEO and Founder Tatsuya Saito, Foreign Law Joint Venture Partner Lawyer Kimimi Umezu of Anderson Mori & Tomotsune, and Takuto Yamada, Investigator of the Digital Asset Business Room of the Frontier Business Development Department of Mitsubishi UFJ Trust Bank, gave speeches.

Yuki Kamimoto, CEO of N.Avenue/CoinDesk JAPAN, who served as a moderator, first raised the issue of tax treatment in the composition of ST assets other than real estate. This year, while there have been cases of Phillip Securities tokenizing investments in movies, the majority is still occupied by real estate ST. However, with tax reforms underway, we can expect a wider range of assets such as movable property, investment shares, and overseas assets by 2025, in addition to real estate.

Under the current tax system, what are the points of discussion when it comes to the composition of ST other than real estate? At the beginning, Mr. Yamada explained the details. Mr. Yamada regularly organizes accounting and tax issues related to digital assets and is deeply involved in the creation of requests for this tax system revision.

! [Mr. Takuto Yamada, Researcher, Digital Asset Business Office, Frontier Business Development Department, Mitsubishi UFJ Trust and Banking Corporation] There are two main requests for tax reform proposed to resolve the above issues. These are "clarification of the taxation relationship related to 'principal refund'" and "exclusion of retained earnings on 'valuation and conversion differences, etc. recorded in net assets.'" It is a very technical content, and Mr. Yamada's explanation will not be introduced in detail in this article, but it is said that the realization of these two requests will lead to the expansion of ST's assets other than real estate.

Normally, the tax reform outline, which should have already been announced at this time of year, was still uncertain whether this request would be realized at this event. In the panel discussion, the discussion proceeded on the assumption that the request would be accepted (The "Fiscal 2023 Tax Reform Outline" was approved by the Cabinet on the 27th, and it was confirmed that measures had been taken for the above two requests).

Looking back on the time when this tax system issue became apparent, Mr. Saito says the following.

[Progmat Representative Director, Founder, and CEO, Tatsuya Saito] "In anticipation of practical changes to real estate ST during the implementation of tax reform, trust companies have been cautious about issuing new ones based on previous practices. As a result, while clarifying the points of practical changes before and after tax reform with each company, we are gradually seeing movement towards new issuances, and it is expected that issuances will accelerate from next year. Furthermore, the possibilities for other assets are expanding, and it is seen as a stepping stone for a significant leap forward towards next year."

Position of Each Asset Before and After the Amendment

Before and after the tax reform, how will the positions of each asset change?

"Real Estate ST" will continue to be issued even after the revision, but the practical aspects will change. It will be necessary to make adjustments such as system changes before the application starts.

"Dousan ST" was difficult to issue before the revision, but after the revision, it can be issued without any problems on the system. Clarifying the taxation related to 'principal repayment' makes it easier to structure ST as an investment product.

"Equity stake ST" and "overseas asset ST", which could not be issued before, are now easier to form ST due to the exclusion of "reserve for evaluation and translation differences etc.". However, attention is required as it becomes necessary to solve individual issues.

One example of tangible ST is the security token for solar power generation issued by Daiwa Securities. Mr. Saito points out three key points.

"One is the tax system that has been discussed so far. The second is whether investors can understand it. It is necessary to have a solid understanding of the treatment of principal, etc. And the third point is that due to the regulatory easing this year, securities from the same group as the issuer can become the lead underwriter."

Another example often cited as movable property ST is aircraft, but Mr. Umezawa explains the problems of STizing aircraft as follows.

［Anderson Mori & Tomotsune Law Firm Foreign Law Joint Venture Partner Attorney Kumi Umezumi］"Aircraft often move around a lot, so liability issues may arise when problems occur overseas. It is also difficult to back up the assets of foreign-registered aircraft. Solar power would be very suitable as movable property that can generate profits for a long time. There are many other assets that can be considered for verification, such as rental cars and shared bicycles."

Discussion on investment stake ST and overseas assets

Next, the discussion turned to investment shares ST. With the government promoting the "5-year startup development plan," there is a joint effort between the public and private sectors to consider securitizing VC fund shares and selling them to individuals.

"It is assumed that the tax system revision will be realized, but Mr. Saito believes that it is possible to actually issue it in 2025, as long as the VC fund and the securities firm in charge of sales are firmly established."

However, compared to real estate ST, it is a very high-risk product. Mr. Umetu points out that it is necessary to consider the sales method, such as selling to investors with a certain level of knowledge.

And when the topic shifts to overseas assets, an article published in the Nikkei newspaper on the morning of the event day was introduced. It featured the 'Digital Asset Co-creation Consortium' organized by Progmat, which plans to issue ST backed by overseas real estate as collateral as early as 2025.

Even for overseas real estate, the approach remains the same with 'beneficiary securities issuance trust.' This has been the foundation of real estate ST in Japan so far. However, since legal systems vary greatly in each country, we are now at the stage of considering each project individually as the next step.

Mr. Yamada points out challenges from a taxation perspective.

It will be necessary to consider individual cases to avoid double taxation, where taxes are imposed both locally and when funds are transferred to Japan. In the future, there will be a demand for the construction of schemes that can apply these points effectively.

Expectations for Security Tokens for the Next Year

Finally, three people talked about their expectations for security tokens next year.

Mr. Yamada cites two points: expanding the player base and streamlining ST management tasks.

"As the range of target assets expands, a soil is created in which players other than real estate can participate. We want people with various areas of expertise to enter the digital securities industry. Also, despite being called digital securities, there are still many analog operations. We have high expectations for Mr. Saito in terms of stable coins. Currently, even just the transfer of funds imposes a considerable operational burden. Next year, we want to further streamline operations and accelerate asset expansion."

Mr. Umezawa expects further expansion of ST company bonds and points out the following.

When issuing beneficiary securities trust, securities companies in the same group as the issuer can become the main company. We expect the movement to utilize and internalize assets within the group and expand the issuance of ST in the future.

Mr. Saito speaks very excitedly and advocates the importance of stablecoins.

"2025 will be 'ST2.0'. However, existing remittance methods, including international transactions, are a major obstacle. Next year, we want to use stablecoins to further realize efficiency. As a result, it will be a year when various product ideas come to fruition."

ST Market from the Perspective of Startups

The closing session of the forum was titled 'The Transformation and Growth of the ST Market, as discussed by Emerging Startups.' Speaking at the session were Kohei Yamamoto, CEO of Digital Security Preparation, and Tomohiro Jitsui, CEO of Hash Dash Holdings.

Digital securities preparation, founded in 2020, is positioned as a preparatory company without a license, as its name suggests. It is planned to obtain a license by 2025 and start composing ST.

Hash DasH Holdings was founded in 2019. With a securities license, the company offers services that leverage both securities business and system development know-how through its own ST platform. Since its founding, the company has been developing its business with a focus on ST conversion leveraging the characteristics of the "GK-TK scheme".

Both companies are startups, but how do they think about winning strategies unique to startups? 'We believe that it is important to focus on securitizing medium-sized assets or unique assets that are different from major securities companies,' said Mr. Sanei.

［Hash DasH Holdings Representative Director Tomohiro Sanei］As a point to acquire new investors, Mr. Sanei says, "While leveraging the reliability as a financial product, by eliminating a bit of the scent of financial products and considering a mechanism that naturally encourages entry through collaboration with other services, I wonder if we can attract people who are not currently in the securities business."

Aim to build a financial product convenience store and marketplace

On the other hand, what Mr. Yamamoto aims for in the future is to create a marketplace for digital securities. Mr. Yamamoto says, 'Imagine a Mercari for digital securities. We call ourselves 'the convenience store of financial products'.

［Digital Security Reserve Representative Director and CEO Kohei Yamamoto］In that convenience store, there are various products with different yields. In the midst of them, it is possible to find a product that suits you.

"If there are good products, investors will gather. And because investors gather, even better products are lined up. We become gatekeepers, and trustworthy products are lined up, so you can buy with confidence." (Mr. Yamamoto)

However, there are challenges. The issue lies in the tax system of the GK-TK scheme. Mr. Jitsu said, 'The challenge is that it is a comprehensive taxation.' Although requests have been made at present, it seems that it will still take time to establish this tax system.

From the perspective of startups, how do they see the outlook for the ST market in the future?

Mr. Shiizai believes that initiatives such as expanding alternative investment options and diversifying fundraising methods will contribute to the development of the ST market.

Mr. Yamamoto says that startups have no choice but to compete on product quality. "We have to provide a value that individual investors have never experienced before. That's also one of the good things about startups." (Mr. Yamamoto)

What Mr. Yamamoto is paying attention to is the household assets, which are said to be as much as 220 trillion yen. Each individual is envisioning a future where they come together and become the driving force behind the digital securities market. Mr. Yamamoto said, 'The counterattack of individual investors will begin with digital securities. Just as Mercari grew, we also want to expand our marketplace.'