Digital REITs

Blockchain and Real Estate

The use of blockchain technology is already challenging established notions of real estate negotiation, trading, and ownership, and a lot more is yet to come.

By João Gaspar Marques, TBY Contributor and Content Manager at Coinvision, a blockchain due diligence and market intelligence platform.

The word Blockchain has stormed the globe over the last couple of years, mostly due to the meteoric rise in the value of Bitcoin and other currencies.

With so much chatter about Bitcoin millionaires however, it is easy to overlook the actual potential of this technology to impact the physical economy, beyond the innovations it is already bringing to the world’s financial system.

One of the industries that has been attracting the most attention for the deployment of this tech is the real estate sector.

Being the world’s largest asset class, valued at around USD220 trillion and contributing around USD10 trillion per year to the world’s economy, the use of blockchain technology for data gathering and process optimization in real estate could have a profound economic impact.

The novel ways in which this technology allows for investment and ownership is what could be the real gamechanger, however.

The sector is expected to create revolutionary trends in the years to come.

So what do these new forms of ownership really look like, and who is potentiating them?

Tokenize my crib!

One of the clearest ways in which the tokenization of real estate investments can change the industry as we know it is in the democratization of partial ownership. Today, most investors either have to deal directly with a physical purchase in order to invest, buying an apartment for instance, or they invest in real estate investment trusts (REITs), through third party brokers and limited transparency.

Just by bringing these traditional investment forms to the blockchain, a number of improvements can already be witnessed.

Global REIT, a UAE-based blockchain project, is trying to do just that, by developing the first REIT for the blockchain.

The team is planning to acquire a hotel in Dubai worth USD75 million, through a multi-year 8% yield contract, as their first move. Once concluded, investors holding the company’s tokens will receive proportional dividends from the company’s investments and be de facto owners of a partition of the underlying asset (the hotel).
This allows anyone to own a portion of a property located anywhere in the world without having to deal with any of the lengthy legal procedures.

The use of blockchain tech in this case allows for one specific and important improvement to the current state of the industry, dividend distribution. Today, real estate funds and trusts need to create escrow accounts and different sets of transfer processes to distribute the dividends yielding form the asset to investors. If the management company chooses to withhold those assets or goes bankrupt, the recovery of investor capital can be challenging to say the least.

A REIT based on an Ethereum Smart Contract, for instance, could take dividend distribution to a new level of optimization, automating it and ensuring the funds are kept in a secure and controlled manner, protected from corporate mismanagement.

Further, the fungible and liquid nature of the crypto market allows for quick and easy asset transfer, opening the doors to a much large number of participants in the market and overcoming issues of long-term capital holding periods (usually anywhere between three and 10 years) and lack of liquidity. With a larger and more dynamic pool of investors, selling and purchasing positions in funds, trusts, and partially owned properties becomes an ever more streamlined investment.

For these and other reasons, Blockchain projects in this sector have been gathering quite a bit of attention in recent months. In fact, there is another UAE-based project exploring the space that has been gathering considerable traction.

Evareium, a subsidiary of established real-estate investment firm Evare is launching its own tokens to allow investors to easily own part of high dividend-yielding properties in an easy and profitable way. So far, Evareium has already secured the rights to acquire a US20 million real estate portfolio in Dubai, for its initial investment stage. This maturing Middle Eastern scene seems to be ahead of the curve when it comes to bringing the real estate market to the forefront of the tech world, a move that is certain to retain international investor attention.

Beyond simplicity

Opening up access to partial ownership and facilitating investor access is only part of the story. The use of distributed ledger technology for land and asset registry can eliminate the hassle of legal agreements, guarantee authenticity of title records, make public all property history, and open the door to instant round-the-clock access for investors within the crypto sphere.

Put simply, these developments have little to do with home owners demanding Bitcoin for their properties because they believe they can evade taxes (a story that has become annoyingly common), and a lot to do with taking property investment to the next level, where the investor/owner has easy access to different assets, its dividends are protected under a smart contract architecture, immutable and reliable information about the assets is easily available at all times, and positions can be easily made liquid in an ever broadening investor pool.

Furthermore, the impact of the use of this technology could be shown in more than financial manners. Meridio, a Brooklyn-based real-estate focused blockchain startup has a vision to use blockchain to address this “generation’s rent crisis.”

The company forwards the concept of “rent-to-own,” a system in which good behavior by the tenant could be rewarded with progressive asset equity which is based on rent, or act as means for the asset-owner to unlock part of his/hers investment via partially selling the property, rather than either choosing to keep all of its investment locked or outright selling the property.

Socially, economically, and bureaucratically, blockchain is already changing the real estate sector as we know it today.

Coinvision is a due diligence community platform, helping 10,000+ investors to discover credible cryptocurrencies; your first step to understanding the potential of new blockchain tech.