How Blockchains Can Transform the Real Estate Industry

Real Estate

Blockchain technology has the ability to change the parameters of the traditional world, making out-of-the-box ideas a reality. The real estate market in particular has many limits, including a lack of liquidity, as well as a cumbersome ecosystem that could be made to be much smoother. As such, blockchain technology has the potential to unlock the true potential of the real estate market.

Inefficiencies in the Current Real Estate System

In the real estate industry as it currently exists, investors are often required to invest in entire properties. There are only so many investors with enough capital to invest in real estate, due to the fact that even the most affordable properties can be very costly, compared with other investment options.

Additionally, there are no exchanges or simple ways to buy, sell or trade real estate without excessive time restraints and complications. Stocks and bonds, for example, are much easier to deal with in this regard, since they are much more liquid.

Real Estate Investment Trusts

Many people point to Real Estate Investment Trusts (REITs) as solutions where individuals have greater ability to invest in real estate. However, with REITs, investors are still highly limited in their options and potential for returns, with high costs associated.

"Due to the high costs to set up and manage, as well as [the] many restrictions on how and what a REIT can invest into, investors are typically only offered a 4-5% annual return," according to a blog post from the blockchain solution RealFuel . "Also investors typically cannot invest directly into a single asset (or a development project for that matter) but only into a 'basket of assets/buildings.'"

Blockchain technology grants the ability to unlock the potential held within the current real estate market, introducing a whole new world of liquidity and opportunity for investors.

Benefits of a Blockchain-Based System

In simple terms, blockchain application could allow real estate ownership to be delegated, traded or decentralized in other ways via tokens that represent fractional ownership of the underlying property or asset. These tokens could be traded on exchanges, transferred person-to-person or individually owned.

Propy, a blockchain solution for real estate, stated in its 2017 white paper that "the global real estate market is worth $217 trillion and makes up more than half the value of all mainstream assets worldwide."

Decentralizing such a large industry with blockchain technology could allow a new wave of investors who were previously barred to participate.

"[Tokenization] is going to revolutionize how real estate investments are made, as the barriers to enter the market will be effectively removed and anyone would be able to invest, not just large investors or corporations," said Natalia Karayaneva, CEO of Propy, in an interview email. "Tokenization is also going to make portfolio diversification easier - instead of spending $100,000 on one property, you can invest $10,000 in 10 properties in different locations, which would not only reduce the risk but potentially increase the overall return on investment."

SwissRealCoin is another blockchain solution looking to eventually provide global application for the tokenized real estate market. In an interview with SwissRealCoin CEO Brigitte Luginbühl, she explained their vision for the future of tokenized real estate and their role in that future:

"I see [tokenization] as the future of real estate fundraising in particular for private equity instruments," she said. "We are developing the technological platform for real estate owners to do fundraising in a cheaper, faster and more secure way on the blockchain. As the liquidity on the secondary market in private equity is typically very low, we provide the technological infrastructure to make the matching on the secondary market faster and with less search costs."

Crypto Real Estate is the company behind SwissRealCoin, which provides the necessary software development (as well as other aspects) to make blockchain-based real estate a reality.

Luginbühl also stated in the interview, "On a company level, we are the technological provider for real estate companies. We already have first clients using our technology as 'white label' to do their own real estate tokens. Currently, we are building a fully-fledged platform for faster and cheaper real estate fundraising with a supported secondary market trading place."

HiP is yet another company looking to change the world through blockchain-based real estate. In an interview with HiP co-founder Sam Collett, he stated that its vision is to "create financial freedom and improve quality of life through a new asset-backed economy."

Collett went on to describe that, in HiP's current model, "the property is not securitized as a token as such - there are no securities involved. All properties are divided into fractions that are equivalent to local currency. The token is merely a fee on all trades."

Bluenote is one more company in the blockchain property space, but with slightly different goals. According to its website, Bluenote has found that "buildings that use less energy can become more profitable. Providing blockchain based proof that energy efficiency is the source of that profitability, can unlock the potential of $6.5 trillion in global real estate value, and solve climate change too."

It is clear that there are many contenders in the blockchain real estate space. With so many promising projects, the public should soon see substantial change to the current system, helping the masses in the long run and providing a more efficient and effective system of finance in real estate.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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