New opportunities, new risks
In an interview with Tom Bill of Knight Frank, real estate expert, Abimanyu Dayal, said blockchain has the ability to revolutionize the property market due to its ability to increase liquidity rates.
“This could revolutionize the real estate market because it provides 100% liquidity 24/7,” says Mr. Dayal. “If you want to invest in London residential property today you are looking at £700,000-plus and are locked in for seven to nine years. Now you can enter and exit whenever you want and that is how people want to invest.”
However, the regulation of real estate tokenization is still something that is yet to fully settle. Mr. Dayal, however, believes that this will not affect property values, as the currency will always be based on domestic currency and not the token itself. If a dollar appreciates against a crypto, the liquidity of the cryptocurrency allows for an immediate adjustment that offers no arbitrage.
Conversely, Oxford professor and real estate expert Andres Baum believes such a liquid market is neither achievable nor desirable. His research document Proptech 3.0 is the leading word on technology and property.
“If real estate traded more like a stock or a bond, prices might rise due to increased liquidity, but equally they might fall because of greater volatility and risks. The global banking system has survived over the last decade because it has not been forced to mark property assets to market.”
This follows a similar theory which states that the banking system relies on marked property asset value. Investors who seek a different avenue than stocks and bonds may suffer from a lower yield due to a lack of diversification.
Real estate tokenization
Blockchains prevent any data manipulation once the information is on the distributed ledger. As a result, the technology records data permanently, efficiently, and transparently so that all parties involved can see the history of transactions.
Moreover, blockchains prove very difficult to attack due to their decentralized, distributed nature. All these features encouraged the development of peer-to-peer transactions with cryptocurrency. Though since the advent of cryptocurrency, investors have sought a way of tokenizing other assets. Real estate tokenization is one such example.
Blockchain real estate startups tokenize an asset ensuring that sellers actually own the property and that the buyer has the funds to cover it through cryptographic smart contracts. A blockchain can seamlessly verify all this data instantly, reducing the time and the total cost of the transaction.
Tokenizing a property into cryptocurrency increases the security and viability of the purchase, and opens up a global market. To many, blockchain technology has a clear application in the notoriously opaque real estate market. Several blockchain real estate startups have filled this niche by driving innovative solutions.
there are quite some articles about real estate and tokenization/blockchain. Interresting to see what will happen in the next 5 years. Slow progress but for sure I think blockchain is going to change something for the better