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Blockchain for Real Estate: The Next Vertical Investors Should Start Looking At

By Novum Capital

Illustration: Aerial view of homes

Blockchain in past years’ reflections: A strong core and ascending applications

The total funds raised in 2018 was around US$ 11.5 billion, against little more than US$10 billion during 2017, with a mere 15% of growth, according to the report ICO Market Analysis 2018 by ICObench. Among ICOs ended in both years 2017 and 2018, the leaders by the number of funds raised are Platform and Cryptocurrency/ New Blockchains (eg. EOS). An analysis from cointelegraph.com showed that these sectors, were always the top 2 industries by funds raised, also accounted for a major proportion of the total market — with the numbers of funds raised for Platform reaching over US$ 6 billion in 2018 while the figure for Cryptocurrency/ New Blockchains was over US$ 4 billion.

Besides, other sectors which support the development of blockchain (including smart contracts, internet-based products, software and other types of infrastructure relating to some IT network environment) also achieved positive results during 2018.

On the other hand, 2018 also witnessed the rise of Fintech sector, including Banking and Financial Investment, which amassed US$ 4.4 billion, together with a growth of approximately US$ 1.4 billion in theBusiness Services.

Looking back on ICO market in 2017 and 2018, it is likely that we can recognize a stable growth in core industries, which support the development of blockchain technology, along with a rising role of some fields of application that are closer to final users. This has built a strong core for the blockchain economy and incentivized the application of blockchain technology in everyday life.

Moving forward to the year 2019, what industry investors should keep their eyes on?

In 2018, we saw the first offerings of tokenized bonds, equities, and even luxury real estate condominiums. In 2019, many industry experts are expecting the technology to be more widely adopted. Blockchain technology is set to enter a new era this year when an ecosystem of issuance and trading standards will be established across multiple countries and regions with listings on new exchanges for tokenized assets.

The rise of Alternative Asset Classes — move from crypto to digital assets

With several indicators predicting a possible global slowdown especially in the bond markets in the coming year, investors are now looking out for alternative asset classes. With the developing markets and technological advancements for security tokens, there are immense prospects in the tokenization of well-performing assets that previously lacked liquidity. One asset class that looks ripe for tokenization is real estate, which tends to have robust returns but lacks wide market access.

Why are tokenized Real Estate assets promising investments?

1. Real Estate is a market full of potentials…

Investing in real estate is proven to be a good long-term investment as part of an overall strategy to build wealth and generate an ongoing passive income. Real estate provides better returns than the stock market without as much volatility (ideally with as little layers as possible and the right amount of leverage) and, historically speaking, your risk of loss is minimized by the length of time you hold the property. Real estate gives you more control of your investment because your property is a tangible asset that you can leverage to capitalize on numerous revenue streams while enjoying capital appreciation. It has high tangible asset value and investment in real estate can also diversify your portfolio.

Global real estate is a more valuable asset class than all stocks, shares and bonds combined which together amounted to a mere US$170 trillion in 2016. Real Estate worldwide is valued at approximately US$217 trillion according to Savills, obtained this statistic based on the value of all global property (including commercial and residential property and forestry and agricultural land). Out of this sum, residential property accounted for around 75% of the total value.

… but has not yet been disrupted by technology for a long time

Noticeably, US$ 80 trillion of that money goes into real estate mostly via traditional investment consultants, fund of funds, broker-dealers and Registered Investment Advisors. Yet only a measly US$ 0.5 trillion or maybe even less passes through technology-driven platforms into real estate, as of 2015. Until the end of 2018, a trivial number of funds, US$ 0.5 billion, was raised through ICO projects in the Real Estate sector. This suggests how much more room for advancement we can have by using technology to disrupt the global real estate investment market in the years to come.

For a long time, the real estate industry has been mostly undisturbed by technology. However, the astounding US$ 2.7 billion invested in real estate technology in September 2018 (a month-over-month increase of 132%) has indicated that these systems and processes may no longer be sufficient for the future while opening up a new era of innovative tech-based real estate investment. In other words, as forecasted by Forbes Real Estate Council, the application of technology, especially blockchain, in real estate is inevitable in the not-too-distant future. Technology will reduce and eventually remove the need for realtors, while blockchain will be useful in terms of offering smart contracts and higher liquidity to owners with tokenization.

2. Advantages which tokenization can bring to the world of real estate investment

  • Tokenization provides accessibility and liquidity for the global real estate market. Tokenization enables everyday investors, no matter in which part of the world they are staying, to enjoy the profit from the fruitful real estate market. Firstly, the investment pool for tokens is truly global. Anyone that meets capital requirements and has an internet connection can invest. Secondly, by dividing an (illiquid) asset into fractions with blockchain technology, tokenization lowers the barrier to entry, since an accredited investor can invest in as many fractions as he can afford. Moreover, tokenized real estate assets offer investors an effective solution to diversify their portfolio without any geographic restrictions.
  • Smart contracts reduce transaction cost and time. Tokens can be allocated and managed through smart contracts that would automatically activate important processes. For example, the lengthy process of purchasing or trading real estate involving intermediaries can all be standardized and detailed within the token created by smart contracts and the Blockchain’s immutable ledger. As a result, smart contracts enabled by blockchain technology reduces transaction cost and time.
  • Security and immutability. Blockchain technology has been known for its transparency and security. On blockchain-based platforms, cryptographic encryption protects these tokenized real estate assets. Blockchains tracking the tokens are append-only, meaning everything that has happened in the past cannot be changed and is public to anyone who might want to look, and that includes the regulators

In conclusion, after years of developing the core of blockchain technology with a massive number of funds flew into platforms and cryptocurrency sectors and other industries supporting the growth of blockchain economy, it is expected that 2019 will embrace a change of more blockchain-based applications in everyday life. From an investment standpoint, real estate is obviously one of the most potential markets that investors should not keep their eyes off. Because after years of staying away from technology, it is now time for real estate to transform into a decentralized market for everyone in the tokenization economy. The blockchain is here to change the way real estate market operates as well as how people used to invest in real estate sector. Thereby, it enables everyday investors to access real estate market and enjoy as much benefit as they can while offering accredited investors a chance to diversify their portfolio without any geographic restraints.


Written By Novum Capital on Medium for Novum Global Ventures

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