The real estate market could evolve with the tokenization of assets on the blockchain.
In 2008 the bursting of the real estate bubble driven by subprime mortgages literally devastated the real estate market and the financial system that is directly and indirectly linked to it. However, the real estate market is now slowly recovering, at least in the United States.
In 2018, in fact, the total US real estate value increased by 6.5% reaching the approximate figure of 32 trillion dollars. In other words, the worst seems to be over, although the problems of the real estate market and related investments are clearly beyond having been solved.
What has always made investments in real estate rather complicated, in fact, is its substantial illiquidity, it is not at all easy to mobilise investments of large and medium-sized amounts such as those related to a property. In the last ten years, with the collapse of real estate valuations, the problem has become even worse, precisely because of complications in the sale of assets that have now been heavily devalued.
The high initial investment costs clearly entail a consequent difficulty in liquidating the position, succeeding in making a profit in the short to medium term. This is why this type of investment is usually the exclusive responsibility of banks, financial institutions, institutional funds or people with large assets at their disposal.
Real Estate and Blockchain
This is why the advent of blockchain technology and cryptocurrencies, over the past decade, could be a very strong incentive to change the status quo, allowing easier access to this form of investment, thanks to the so-called tokenization of assets.
But how exactly does this process work? In very simple terms, it is a matter of dividing a property into many small tokens that can be traded on the market or rented for the part of the value that they represent.
In the United Arab Emirates, many new buildings are now built with the aim of tokenizing the entire property from the outset, which is then divided among several investors, each of whom holds a part of the property.
In this way, it is easy to understand how a high-value asset (such as a prestigious building or apartment) divided into many small portions becomes appealing to a larger audience of investors.
In addition, the decentralisation of the blockchain with the ability to sign smart contracts between parties eliminates the whole chain of intermediaries who only lengthen the times and increase the costs of investments.
Forbes magazine cited the first case of a $30 million luxury apartment in New York, purchased in 2018, with the use of tokenization on the Ethereum platform.
It is also interesting how the famous cryptocurrency investor Kirill Bensonoff saw a precise correlation between the recovery of the real estate market and the exponential growth of cryptocurrency and blockchain technology. As if to say that the explosive expansion of the new and innovative technology can have a very positive influence on the real estate market.
“Real estate assets can now be tokenized and traded so that a property can be bought and sold like any other digital asset. In addition, real estate can now be divided into shares and traded like any other financial instrument”.