Firstly, let’s get a simple explanation as to what is tokenisation; Money, shares in a company or a piece of real estate could all be represented by tokens recorded on a blockchain. It’s called tokenization, and it’s one of the most significant aspects in the development of blockchain technology and many say it could affect the economy as much as the development of the Internet.
There is a growing shift to modernity in what is a typically ‘tied-to-tradition’ industry. Real Estate has been known for many years as a slow, paper dependent process, causing significant delays in change of ownership, delays in transactions and much more. The solution? Tokenization. Which offers the ease of access and speed previously deemed impossible by connecting real estate to a Blockchain or Token.
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When we look at global averages, it can take anywhere from 3 months to a year to execute real estate contracts. These cause massive delays in an industry with a global value of over $200 Trillion.
So, let’s look at how tokenization of real estate can make a massive difference.
Traditionally, real estate has been a very safe investment but an illiquid asset. This effectively locks away the investor’s money for extended periods of time. An asset with high liquidity, on the other hand, can be changed into cash quickly and with relative ease. Real estate assets can become liquid, but the costs and timing associated with the process remain high.
Tokenization introduces this liquidity in a simpler way through tokens which can be traded at all hours from nearly anywhere in the world. Higher liquidity can also have a positive influence on the value of assets by removing intermediaries and helping investors maintain current costs and prices.
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Smart contracts are computer protocols which can facilitate, enact and verify contracts which are traceable via a public ledger. These contracts can be of huge value to the real estate industry by enacting transfers in a more transparent, traceable and efficient way than ever before. The use of smart contracts in real estate also opens a pool to global investors and purchasers who are now able to invest across borders, bolstering new international investment opportunities.
Applicable to everything from home searches to rental agreements and more, smart contracts can provide smooth, fraud-proof transaction and agreement processes without the use of costly third-parties and intermediaries. By using smart contracts and drastically reducing costs, real estate investment has also become more accessible to younger investors who have typically turned to crypto investments above other assets.
Fractional ownership is another major draw to be found from tokenizing the real estate industry. In the majority of blockchain networks tokens can be created even when representing a physical asset which wouldn’t traditionally be divisible. This brings the possibility of fractional ownership to real estate investors and entrepreneurs.
Like shares, tokens can represent a stake in an asset, with multiple owners who can gain profits with lower overall exposure to risk. With fractional ownership, token holders could even own shares in a rental property and collect a portion of rent as passive income on a regular basis. This is a big draw to newer investors looking for a gentler and more risk-averse entry to real estate investment, and who were previously unable to invest in the sector due to high thresholds of traditional REITs.
From the United States to Europe and more, tokenized real estate has grown in prominence across the globe, with multiple examples making the rounds in the media. In Manhattan, a multi-story property in the East Village became the first real estate to be tokenized on the Ethereum blockchain in 2018. Similarly, in Italy, a 1613-square-meters mansion designed by the famed Giacomo Della Porta was recently auctioned by Propy using blockchain technology.
The most successful tokenization of real estate to date, however, took place in Aspen, Colorado, with the prestigious St. Regis Aspen Resort being sold for Aspen Coins. Beyond this success, the adoption of real estate tokenization has even extended to property in virtual reality, an unexpected use-case with intriguing possibilities for 2019.
The real estate industry has long been overdue for an overhaul in modernity. Dependence on paper-heavy processes with slow turnaround times are contributing to rising interest in alternatives like tokenization and automation. The use of smart contracts, the benefits of liquidity and fractional ownership and successful existing examples of blockchain in real estate are ensuring the future of the technology in the real estate sector. Real estate can also provide needed stability in the often-volatile token industry, providing some risk protection for new and more cautious investors.
To learn more about Tokenization in the Real Estate sector why not join us at the Monaco Blockchain Conference on May 31st. Tickets available from www.MonacoBlockchainConference.com
Prepared by Aaron Faulkner