Real estate, like many industries, is evolving and changing with new technology. The advancement in how properties and real estate interacts with the environment, tenants, and owners alike have led to developments in tech that effectively led buildings to be greener, smarter, and more efficient for stakeholders. These same advancements are not only successfully helping property owners manage their costs and operations but are now restructuring the traditional model of real estate ownership and investment.
Traditionally, the ability for someone to invest or own real estate often was only available to private institutions, required large amounts of capital, access to financing, required lengthy contracts, and illiquidity of funds. However, technology through Blockchain aims to disrupt these barriers allowing the ordinary person to invest in real estate assets and developers to fund new real estate ventures.
What is Blockchain?
The term Blockchain is synonymous with cryptocurrencies and often confused with elusive money conjured by the internet of things (IoT). However, Blockchain is poised to be maybe one of the most significant evolutions in tech and the beginning of a new way to invest money freely and fluidly into real estate.
As a starting point, Blockchain is a sort of public spreadsheet that can be programmed to record and track anything of value. Once a transaction occurs, a record is created and is validated globally by computers participating in the network – in this case, a blockchain real estate network of investors. Once the transaction is authorized, the file is permanent. The owner of the deal has the power to move anything of value freely and instantly without borders or intermediaries.
Blockchain is not a single network; it is a type of technology implemented in various ways with many different applications and markets. When spending more time immersed in the potential uses for Blockchain, one will begin to realize the technology democratizes venture capital, putting power into the individual stakeholder and lowering barriers of entry for investors large and small.
Blockchain and real estate
Historically reserved for those who have deep pockets, buy-ins for property and real estate ownership, require capital for million-dollar transactions. Sellers are put-off by significant cuts throughout the transaction cycle. However, this is precisely the challenge that Blockchain platforms aim to solve through tokenization.
Tokenization refers to the process of converting property ownership into digital tokens or virtual currency (not to be confused with digital coins like Bitcoin) and sold to investors around the world via a blockchain technology platform. Much like buying a share of stock in a company, the tokenization of real estate fractionalizes ownership stake in real estate assets. Tokens represent asset shares providing liquidity of the investments to be traded or sold without long term restrictions and the complexities that come from contract structures and fees.
Tokenization is having a significant impact on the real estate industry, ultimately enabling anyone to invest in a property and trade that investment (just as one would now trade a share of stock) through their Blockchain platform. As mentioned previously, for buyers/investors, tokenization allows them to enter the real estate market and stake ownership on prime properties without having to pay for the full value of the property itself. For developers, converting their purchase of property into tokens is an effective way to raise project capital in a short amount of time.
For sellers, tokenization is one way to speed up the sale of high-value properties without having to reduce their selling price and go through the process of an intermediary party. Likewise, tokens go cross border and are not confined by geographic location.
Additionally, blockchain technology in real estate investing also allows for the automated distribution of dividends to token holders, which they can cash out or use to buy additional tokens to compound their investment. (Manilla Times)
There is already proven the value of the tokenization model through the successful sale of numerous property tokenization offerings around the world. As a very recent example, one Texas-based commercial real estate (CRE) marketplace has tokenized $2.2 billion worth of real estate assets from Texas to New York to California. It has plans to tokenize $4 billion in property over the longer term backed by 30,000 accredited investors. (Forbes, 2020)
Blockchain is the future of real estate investment, where efficiency, liquidity, and ease through “smart contracts” take property investment and ownership possibilities to the mass market. The absence of physical transactions for virtual are just some reasons there is increased interest from investors. Additionally, the potential also brings diverse investment pools to current property owners to source capital increasing their liquidity for property maintenance, upgrades, and money-saving retrofits.
Sounds great, but how safe is it?
It would be remise as a new investor to not ask about the security and safety of real estate Blockchain and tokenization, especially if you’re planning to transact thousands, if not millions, of dollars through a verified blockchain platform and there are potential pitfalls. Among them is cryptocurrency’s volatility. For example, Bitcoin in its existence has risen and fallen, causing some to be skeptical of its future, but like the stock market’s own highs and lows, there is always a risk. To this end, Real Estate tokens are not “coins” and not traded across varying markets. Positive projections show that due to the large scale and tangible nature of real estate should make it less volatile, and imposed rules, like ones that allow only a certain number of trades on a property per day, should ease concerns. (NYTimes, 2018)
A New World
In the way that technology has changed how we manage our day to day and provide us new ways to operate and maintain properties, so too will Blockchain through tokenized real estate assets. As we move forward into this revolutionary world, developers, investors, and owners can expect better resources to share equity and profits that invest back into communities and sustain a better future.
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Haig, S. (2020, March 6). Red Swan and Polymath Tokenize $2.2 Billion of High End Real Estate. Retrieved from: https://cointelegraph.com/news/red-swan-and-polymath-tokenize-22-billion-of-high-end-real-estate
Hasenstab, G. (2020, April 27). The Transformation Of An Industry: Blockchain Real Estate Assets. Retrieved from: https://www.forbes.com/sites/forbesrealestatecouncil/2020/04/27/the-transformation-of-an-industry-blockchain-based-real-estate-assets/#4144dbd82592
Carvajal, R. (2020, May 30). The Manila Times – Property tokenization: Real estate’s next big thing. Retrieved from: https://www.msn.com/en-ph/news/money/property-tokenization-real-estates-next-big-thing/ar-BB14Oh0c
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