>> This article is for informational purposes only and is not financial advice. The information does not constitute investment advice or an offer to invest.
Tokenization is the latest craze to hit the real estate market, highlighting a growing shift to modernity in the typically tied-to-tradition industry. Real estate has long been characterized by slow, paper-dependent processes, causing significant delays in transactions, changes in ownership and more. The solution to these issues? Tokenization, a solution offering the kind of speed and ease of access previously considered impossible by connecting real estate to a blockchain or cryptocurrency token.
On average, the execution of real estate listing contracts can take anywhere from 3 months to a year or longer! These delays cause significant impact on an industry with an estimated global value of over US$217 trillion. The tokenization of real estate also benefits cryptocurrencies by providing desperately-needed stability in light of recent volatility.
Here are four reasons why tokenization is a new future for real estate:
1. Smart Contracts
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 up 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.
Traditionally, real estate has been a safe but illiquid asset, effectively locking 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 liquiditycan also have a positive influence on the value of assets by removing intermediaries and helping investors maintain current costs and prices.
3. Fractional Ownership
Fractional ownership is another major draw to be found from tokenizing the real estate industry. In the majority of blockchain networks tokens can 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.
Similar to 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.
4. Existing Use Cases
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.
- What is your opinion on the tokenization of real estate?
Disclaimer: Virtual currency is not legal tender, is not backed by the government, and accounts and value balances are not subject to consumer protections. This article is for informational purposes only, and is not financial advice. The information does not constitute investment advice or an offer to invest.
Originally published at news.caviar.io on December 13, 2018.