Real estate is perhaps the oldest asset class, and with age comes a resistance to change. The first mention of a mortgage can be traced back to medieval England, and real estate agents have been around for over 100 years. But the introduction of blockchain promises to upend the traditions that dominate this market and tear down barriers to entry.
One way blockchain will change real estate is by increasing access. The biggest hurdle to real estate investing is price. A potential investor may see a building in a good location and have the business savvy to realise the price will appreciate rapidly, but may not have the funds to purchase this promising asset.
Some investors may not have a credit score that allows them to take out a mortgage; they might not even have a bank account. If this building was tokenised, though, one could easily make money off the increasing value of the property.
Tokenising a building means linking its ownership, and thus its value, to a digital token. Let's take the example of a building worth $1 million divided into 1,000 tokens, each worth 0.1% or $1,000. Then anyone could easily purchase some ownership. They could invest as little as $20 for 0.002% ownership, or 10 tokens and own a full 1%. Barriers to entry are no longer a concern.
This may seem outlandish, but it is already happening. Inveniam Capital Partners (ICP) is tokenising four buildings in the US for $260,000,000. In this case, unfortunately, prospective buyers must have at least $10,000,000 in cryptocurrency already and purchase at least $500,000 worth of tokens.
Other companies are tokenising buildings with lower ticket-size limits. The crypto startup Harbor is tokenising a high-rise apartment building in South Carolina, creating 955 tokens, each worth $21,000, though these tokens cannot be split.
It is foreseeable that as regulation and the industry evolve, the general public will be able to buy smaller and smaller fractions of real estate, as the technology that would allow someone to own 0.002% of a building already exists.
ILLIQUID NO MORE
Tokenisation of real estate will also turn one of the most illiquid investments into one as easy to get into and out of as stocks. Finding someone to purchase real estate can take months, if not years. If something happens during an investor's ownership tenure, and they need their money back immediately, they are out of luck until they find a customer.
With real estate-backed tokens, however, they can simply put all of their ownership on the market. With more potential investors able to buy small, low-risk amounts, the original investor can get their money back quickly, and with more liquidity in this investment, its value will increase.
Initial coin offerings (ICOs) will make it easier to fund real estate projects as well. Developers could essentially crowdfund their projects on whatever terms they wish. Instead of courting a few extremely rich investors, a real estate developer can launch an ICO and secure funds from all over the world.
No longer will investors have to travel around the world to find the perfect property; they will be able to invest as much as they feel comfortable with from the comfort of their own home. An expanded investor pool that essentially consists of anyone with a computer and money could also revolutionise project finance.
Blockchain will also bring quality-of-life improvements for real estate. For example, removing middlemen makes transactions cheaper. Real estate-backed crypto will have much smaller fees than REITs and brokers. Instead of having to sign a document that says you own a property, your title will be sent instantaneously over the blockchain. A property title on the blockchain would not need a "trusted third party", and since it's on a public ledger, anyone who wants to see who owns a property can do so.
ANTI-LAUNDERING WEAPON
Putting real estate onto a public ledger also makes it much easier to combat money laundering. The UN Office on Drugs and Crime estimates that $1.6 trillion is laundered through real estate annually, with 80% of laundered money originating in developing countries. Blockchain will make it harder to launder money because of the transparency of the public ledger, and this money will stay in Thailand and be taxed to help fund our public services.
While the relationship between blockchain and real estate is in its early stages, the field is quickly growing. About $12 billion has already been invested in real estate tech companies. The Swedish Land Registry is beginning to use blockchain in its operations.
Unfortunately, there are few regulations worldwide and it's not known yet whether these regulations will help or hinder the industry. As with other parts of the crypto industry, it will be hard to make a firm decision on a long-term investment unless the government clarifies what will be permitted.
It is still early days in the convergence between real estate and blockchain, making it impossible to predict what will happen.
However, for anyone seeking the most efficient way to invest in real estate, it is clear that using blockchain will completely change the market.
Jirayut Srupsrisopa is the group CEO of Bitkub Capital Group Holdings Co, a local blockchain technology specialist that is also advising businesses on decentralised applications.
