Tokenized Real Estate
Real estate is regarded by many as one of the best investments available. I'm not an expert and not heavily involved in it, but I know more than a handful of people who have been very successful in that arena and swear by real estate investments.
While researching the subject, it was not surprising when I learned that blockchain and cryptocurrency technologies were transforming the real estate industry just like they have been doing with many other sectors in recent years. As a firm believer in the power of cryptocurrency to transform our society, I decided to take a closer look.
Real estate tokenization
In a nutshell, Real estate tokenization means dividing a real estate asset into multiple shares, each one represented by a virtual token that exists on a public blockchain.
The idea of fractional ownership of real estate was not introduced by tokenization. It existed long before blockchains were even a thing in the form of Real Estate Investment Trust or REIT and, while REITs have a similar value proposition, they fall short in several aspects compared to tokenized real estate.
Benefits of Real Estate Tokenization
Incorporating blockchain and crypto into the real estate industry can solve many of the current issues it has. Most notably:
Entry barrier
As great as it is, investing in real estate often requires a sizeable initial investment, an entry barrier to smaller investors who can't or don't want to commit a large portion of their resources to a single opportunity. Through tokenization, investors can own smaller shares of real estate, significantly reducing the capital requirement of the investment.
Geographical flexibility
Thanks to the borderless nature of the blockchain, it's a lot easier for investors to participate in projects worldwide. Do you live in Canada but found out about this great opportunity in Japan? No problems! The blockchain doesn't even know those are two separate nations. All you need is a compatible wallet, and you're good to go.
Proof of ownership
The tokens that represent the shares of property exist on the blockchain and thus benefit from all of its features, including transparency and immutability. Anyone can easily verify who owns a token and the history of the transactions made with that token. Combine that with the blockchain's immutable nature, and you have a great way to prove and verify real estate ownership.
Decreasing transaction costs
Another issue with real estate investing is that it often involves intermediate entities, adding up to taxes and transaction fees. A tokenized structure enables to do away with most if, not all, "middlemen", reducing transaction costs to investors.
Of course, blockchain transactions have their fees, so choosing the right blockchain is crucial to making it work.
The future of tokenized real estate
It's not all roses. Tokenized real estate is still in its infancy, and there are still only a handful of successful projects (and some failures also) out there, so the model still has a lot to prove.
Things like regulation issues, the lack of a structured framework and the fact that people, in general, don't really know how to work on the blockchain are some of the things hindering the advances of real estate tokenization. Of course, that's nothing new to us involved in crypto. We've been fighting this uphill battle long enough to know it will not be easy.
But we soldier on, and eventually, we'll reap the fruits of our persistence.
Final thoughts
Real estate is yet another industry that is being disrupted by cryptocurrency. Tokenization will reduce the entry barrier, making it possible for a broader range of investors to join in. There will be some challenges along the way, but I'm confident the results will make it worthwhile.