Blockchain brings sharing economy to real estate investments

The segmented ownership of buildings and real estate developments is becoming one of the application areas of blockchain technology in the real estate industry. From democratizing access to real estate investments to improving liquidity in the market, there are arguments for tokenization as being positive for the real estate space.

Tokenization through fractional real estate investment is another example of an emerging “sharing economy” that appears to be promoting crowdfunding ownership, a trend that could contribute to the decentralization of global asset markets across multiple sectors.

With millennials, the first generation of digital natives entering their prime, the digitization of the real estate market can generate greater interaction in the market from demographics.

However, as with partial ownership in general, investing in tokenized real estate has its share of limitations. Due to the novelty of the business, the financing options can often be restricted, which leads to lower liquidity in the market and a general lack of flexibility.

Prepare the original small serving

As Cointelegraph previously reported, Fraction, a subsidiary of Hong Kong fintech company Fraction Group, has received regulatory approval to trade in tokens from the Thai Securities and Exchange Commission. The newspaper represents fractional ownership of physical and digital assets.

While the approval covers crypto investments in physical and digital goods, Fraction’s initial focus is on fractional real estate investments and will use the Initial Fractional Offering (IFO) vehicle. ).

According to the company’s announcement in September, IFOs will make it easier for potential investors to enter the high-end real estate market. The IFO tokens will represent a fraction of the ownership of luxury real estate with prices as low as $ 150, which is believed to lower the barrier to further entry.

Fraction listed its first property on its proprietary exchange platform back in January, an apartment unit in On Nut, Bangkok, Thailand. According to information on the company’s website, the process involves digitizing the entire title deed, followed by segmenting ownership of assets before providing encrypted ownership of those parts via IFO.

Speaking to Cointelegraph, Josh Stech, Co-Founder and CEO of Sundae – a digital marketplace platform for residential real estate – emphasized the value of cryptography and partial ownership in the marketplace. “Investing in residential real estate is one of the greatest opportunities for wealth creation, and unfortunately mostly for the wealthy,” said Stech.

“The crypto-blocking of residential real estate on blockchain promises efficient and open access to the largest asset class in the United States not only for young people, but also for everyone who wants to invest in real estate.” With no funds for the entire real estate transaction. “

By leveraging cryptocurrency and blockchain technology, Stech claims that tokenization will help lower the barrier to entry for investors in fractional real estate investments. “While real estate funds and platforms offer retail investment opportunities, they are difficult to find, difficult to value, illiquid and only accessible to accredited investors,” added CEO Sundae.

A slow start

Real estate tokenization is still in its infancy and remains a niche aspect of the market. However, industry insiders say the UK accounting network Moore Global has tremendous growth potential. The estimate that the tokenized real estate market could reach a valuation of $ 1.4 trillion by 2026 is based on coding just 0.5% of the current global real estate market.

While the tokenized real estate space shows promise, there are a few important issues that need to be addressed. Lack of liquidity, especially in the secondary market, institutional indecision and lack of regulatory clarity are among these major obstacles.

Related: Crypto real estate doesn’t exist up to the hype: Real Estate Researcher

According to Tal Elyashiv, founder and CEO of blockchain-focused venture capital firm SPiCE VC, fractional real estate ownership through cryptography is still a long way off. Elyashiv told Cointelegraph:

“I believe that in order to move the crypto real estate market forward, we need some degree of institutional comfort with crypto assets to see what is to come. The market sees a flood of institutional projects. The market must also see innovations in dedicated real estate platforms that enable investments in tokenized real estate assets without investors having to grapple with the underlying complexities of real estate. “

The founder of SPiCE VC added that these dedicated platforms for trading tokenized real estate assets are vital to improve liquidity in the market. Such platforms will make token-based real estate investments more intuitive, Elyashiv said.

A couple of notable examples

At the moment, tokenized properties remain fragmented with various projects offering their own, somewhat restricted platforms, while sometimes regulating vague legal regulations. However, there have been some notable developments in the market.

In the summer of 2020, Overstock’s regulated exchange platform tZERO began trading security tokens, which represent the fractional ownership of a luxury resort in Colorado. The launch generated record trading volumes at the time, but the initial excitement may have been dampened by the market downturn caused by the coronavirus pandemic.

In September, RealX, a fintech company based in Pune, India, launched a blockchain-based registry to enable fractional ownership in the country. As Cointelegraph previously reported, tZERO has also partnered with real estate crowdfunding firm NYCED Group to tokenize real estate worth $ 18 million.

Related: tZERO tokenizes blockchain shares worth 18 million US dollars for the “Robinhood of Real Estate Investing”

Growing demand for segmented property could be the driver of more tokenized property adoption. As millennials become the dominant consumer group in the world, investment vehicles steeped in the ethos of the sharing economy could become even more ubiquitous in the next few years.

The current rise of the sharing economy appears, at least in part, to be due to a pivot point in access rather than the property rights framework that shaped the old economic model. This predilection for access-based services has in some ways contributed to the success of new business areas such as ride-hailing, content crowdfunding, streaming services for entertainment, etc.

With cryptocurrencies, service providers and millennial consumers can have an appropriate mechanism to promote token-based fractional ownership.