Blockchain technology has been among the most talked about disruptive technologies in recent years. The emergence of thousands of cryptocurrencies in the past few years has made an impact on not only payments, but also remittances and foreign exchange too. With the rapid adoption of blockchain across industries, it’s hard to find an industry that has not been influenced by the technology.
In fact, blockchain technology has even managed to disrupt the real estate sector. But why is blockchain set to give the real estate sector a significant edge? Simple: Blockchain can facilitate the transformation of the industry through tokenisation and fractional ownership.
What is fractional ownership?
Fractional ownership is an investment approach that allows the cost of an asset to be split between individual shareholders. These shareholders share the benefits of the asset such as usage rights, income sharing, priority access, and reduced rates. These benefits received by fractional owners are comparable to those of timeshare owners.
What is real estate tokenisation?
Real estate tokenisation is the creation of tokens on the blockchain which are then assigned to real estate properties that are either under construction or already exist. These tokens represent fractional ownership in real estate.
Since physical assets back these tokens, the value of the tokens fluctuates based on the performance of the asset. This is similar to traditional real estate investing, however you will have the ease of transfer granted by the utilisation of blockchain technology.
Real estate tokens can represent different things, from a portion of the deed to equity interest in a legal entity or even ownership of collateralised debt. The token can be in any form of an asset related to the particular real estate.
What does fractional ownership and tokenisation solve?
Liquidity
Real estate is considered one of the most illiquid asset classes that require significant capital commitments and long, expensive transaction processes. Through tokenisation, transactions could be simplified significantly in the industry. Instead of involving several parties like one would in a traditional real estate investment, tokenisation will allow ownership to be transferred directly from investor to investor, essentially cutting out the middleman.
Proof of ownership
A lot of the time, real estate investors face the issue of proving ownership. Similarly to cryptocurrencies, tokenisation utilises the distributed ledger technology. This means there is a database that is shared and synchronised across multiple channels and is accessible by several people. Every transaction is validated and sent by the network that makes up the marketplace. As a result, this technology mitigates issues that may arise from ownership disputes because the network will be able to validate each transaction and prove the rightful owner of the particular asset.
Market security and transparency
Like proof of ownership, the utilisation of the distributed ledger system will help improve both transparency and security in the marketspace. Furthermore, blockchain technology allows information to be transparent. Network participants have the right to access holdings and transactions of public addresses through a block explorer used to search the blocks of a blockchain.
Diversified real estate investment portfolios
With tokenisation, an investor can choose to participate in opportunities across the globe, seamlessly and at a nominal cost. The beauty of tokenisation is the elimination of cross country barriers. For example, you could live in New York and your property portfolio could consist of stakes in both commercial real estate in Hong Kong and even retail real estate in London. In essence, there is no restriction on what jurisdiction you invest in and from what jurisdiction you do it.
Reduced Costs
Thanks to blockchain technology, the removal of the middleman will automatically reduce the costs associated with intermediaries. With tokenisation in real estate, there will be no need for neither real estate agents nor lawyers. Simply put, investors can buy and sell real estate without incurring conventional closing costs on property, lowering transaction fees significantly.
Real estate tokenisation is becoming increasingly popular with plenty of entities sprouting out in the ecosystem to support the development of the sector. For example, Bricktrade is the UK’s first construction financing platform to accept crypto for property investments. Bricktrade has developed a platform which tokenises real estate assets and opens them up to the possibility of investment from crypto market participants.
Developers will benefit from deep pools of crypto liquidity whilst investors can benefit from tradeable, liquid solutions to accessing institutional-grade real estate opportunities.
Through the BrickTrade platform, a property developer will be able to transfer equity of their assets over to Bricktrade, whereby those assets will then become tokenised and offered to crypto investors. Through this mutually beneficial arrangement, the property developers will receive access to much needed funding, and investors will receive access to previously inaccessible institutional-grade real estate investment opportunities.
Evidently, tokenisation is set to become a tool that will be both convenient for developers as well as safe for real estate investors. Not only will property developers be able to tap into cheaper and quicker sources of funds but investors will be able to take on new investment opportunities that are expected to yield higher returns.
If you would like to find out more information about Bricktrade, visit their website here: https://bricktrade.co.uk/platform
