With over 200 trillion USD in global value, the real estate market is still the largest group of assets on the international financial scene, so it is not surprising that many initiatives have emerged that use the blockchain to innovate the way real estate properties are owned and transferred and how interest is earned.
The goal is to combine one of the oldest assets in the world, which is not very dynamic by nature and has always been subject to strict regulations, with a highly innovative technology that offers speed and granularity as some of its strong points.
The first problem has been solved in an almost univocal way, through the creation of ad hoc corporate tools to which to confer the ownership of the physical asset to be subjected to fragmentation. Therefore, although it is not possible to split a real estate asset into a multitude of ownership shares, it is relatively simple to create and transfer a large number of shares in the special purpose vehicle.
From this point on, the initiatives vary, creating a mix of proposals, each with its own specific characteristics.
Blockchain companies in the real estate market
Propy is one of the oldest projects, with the first sale of a property in Ukraine dating back to 2017, followed a few months later by other transactions in the US (Vermont, Arizona and California) including the transfer of ownership of a residence in San Francisco for a value of 917,000 USD.
Propy focuses on the world of real estate agents and brokers, providing them with a range of services to guarantee, among other things, the certainty of transactions, verification of documentary compliance, transparency of procedures and secure storage.
RealT tries to go further, with a model that currently seems to be among the most innovative to manage the transferability and management of real estate assets. First, a company is created that acquires ownership of the real estate and assumes the burden of maintenance. The property is divided into a large number of shares, represented by ERC20 tokens whose minimum unit value can fall as low as 50 USD.
The tokens can be purchased on RealT’s website, similarly to any e-commerce, by paying in ETH with a transaction that is recorded directly on the mainnet.
The rent is paid by the tenant in a stablecoin anchored to the US dollar: this allows the use of special smart contracts, thanks to which the rent matures daily (and not at the end of the month) and is then distributed to all tokens representative of the property.
Besides their internal marketplace, thanks to a recently announced agreement, tokens can be purchased on the Uniswap decentralized platform.
SmartRE is a Silicon Valley startup, which has created a platform where homeowners can decide to sell a fractional portion, creating a quantity of tokens and putting them up for sale to achieve liquid availability without having to resort to traditional debt. The tokens can eventually be repurchased by the original owner, or they will entitle the owner to a percentage of the sale price should the owner one day decide to sell his property.
What is the situation in Europe?
Fundament offers the first tokenized bond, with approval from the German financial regulator (BaFin), fully collateralized by real estate assets. The bond is expected to be redeemed in 2033 and offers an annual return of 4%, which varies depending on the yield of the real estate and any transactions on the assets placed in the collateral.
tZero, Overstock’s operational arm in the blockchain world, has instead relied on the STO (Security Token Offering) and blockchain tool of Tezos to tokenize an entire real estate project of approximately 25 million USD located in Manchester, with the aim of reaching a total value of 640 million USD of tokenized real estate assets by 2022.
This is just the beginning of a still unripe but very promising market segment because the underlying assets are immense in size. Upon finding the most effective tools to incorporate the economic values, as well as those best suited to the issuance and transferability of rights, previously unimaginable scenarios will arise. One of them: the use of tokenized physical assets as collateral for Decentralized Finance products.