For $21,000, you can now buy a fraction of a student residence building, The Hub, in South Carolina. In exchange for your investment, you’ll receive a digital token that represents your share of the building’s ownership fund.
This tokenization of real estate opens up the market to investors that might not be able to afford a full property or even the high minimums of traditional real estate investment trusts (REITs).
In 2018, an asset management company, Elevated Returns, sold tokenized shares in a luxury hotel in Aspen, Colorado. Investors received “Aspen coins” to denote their partial ownership in the project. The crowdfunding campaign, via Indiegogo, started on the 8th of August 2018 and ended on October the 1st, 2018, raising $18 million.
However, only accredited U.S. investors were allowed to participate in the sale with a minimum investment of $10,000. “Accredited investors” are individuals with “earned income that exceeded $200,000 in each of the prior two years” or has a net worth of over $1 million.
These experimental projects point to a possible new future in real estate investment and blockchain technology. But how close are we to the realization of tokenized real estate? Block Explorer dives deeper into the various projects in their space, tracks their progress, and outlines the opportunities available.
Why Put Real Estate on the Blockchain?
The real estate industry experiences some massive problems.
Here are some of the biggest, according to a new report, Top Ten Issues Affecting Real Estate 2018-2019 from The Counselors of Real Estate (CRE):
1. The increasing interest rate on housing mortgages and overall political uncertainties make purchasing a house less and less attractive.
2. The new immigration laws and consequences of urban infrastructure are most likely to contribute to the further price increase of newly-built real estate objects.
3. The boom of e-commerce makes it unviable for many retailers to run a brick-and-mortar business, so the demand for commercial real estate objects is going down.
Moreover, disruptive technologies are reshaping the industry altogether. As another research paper called Emerging Trends in Real Estate (for the U.S. and Canada in 2019) by PricewaterhouseCoopers points out, investing in real estate related technologies will accelerate drastically.
It could reach $5.2 billion in 2018, which is significantly higher than $1.3 billion poured into the field in 2014. And blockchain technologies are named amongst the 13 real estate industry disruptors.
And it’s not surprising. Distributed ledger technologies can potentially patch a lot of holes in the industry. Firstly, it could help create a fully-transparent real estate registry. Secondly, it can create buying opportunities for financially-limited investors, through fractional ownership.
The Biggest Real Estate Blockchain Projects Right Now
Numerous blockchain startups have flocked to the space, promising easy access to real estate investment to anyone curious to get in. And not only to accredited investors. Among the most noticeable are:
Atlant offers Ethereum-based peer-to-peer rentals and tokenized real estate ownership. However, even though the prototype has existed since September 2017, and the public beta of the product was launched in October 2018, there’s still a lot of work to do. The company is still struggling to acquire all the necessary licenses and there’s not much clarity on the timeframe.
Blockimmo is striving to facilitate “an accessible, streamlined real-estate market” through tokenized real estate shares. Their recent big news is the company’s business model approval by the Swiss Financial Market Supervisory Authority (FINMA). It also launched a testnet with two property listings samples.
Real properties supposedly will be available on the platform in 2019. It’s all sounds very promising. Yet, when digging more in-depth to the current company’s website, it appears to be clear that the team has a long way to go.
Some worrying discrepancies can be found in the “frequently asked question” section. It claims that “submitted real estate properties are carefully curated by our team of experts”, but the current number of employees is four, and three of them are developers. So, those are probably not a great fit when it comes to real estate evaluation. But let’s give it some time.
jointer.io is another startup in the field. With an attractive motto “using blockchain & AI to democratize commercial real estate,” they want to go one step further and offer tokenized real estate not as a form of investment in one property but as an index, combining several properties.
Sounds great, but so far the website itself doesn’t articulate much about the progress and it hasn’t launched yet. A popup announcement saying “50 investors viewed this offer” when someone is trying to check out what the company has to offer is also quite sketchy.
Meridio also promises to “democratize real estate,” boasting lower investment minimums, reduced transaction costs, and increased liquidity. It invites you to “browse the properties,” but to do so you have to register on the platform. We’ve requested the access, though at the moment of writing there was no feedback from the team (see below). And the project’s progress, judging by its corporate blog, hasn’t been very obvious recently.
Brickblock is one of the earliest players in the tokenized real estate field and seems like they are on the right track with legal, partnerships and overall progress. It’s yet not clear if the project truly meant to expose any investor to the possibilities of owning a fraction of a real estate. While writing this piece we tried to register on the platform and there were some roadblocks on the way (despite the claims that it will only take 15 minutes to register).
The link to verification application didn’t arrive via text message as promised, the verification code to launch the identity confirmation chat wasn’t working (screenshot below). But overall it feels like an excellent start with an actual perspective of getting somewhere.
What’s Next For Tokenized Real Estate?
Even though the true “democratization” of real estate and the ease of investing in tokenized assets might solve a lot of problems, there’s a long way to go in many regards.
Especially due to numerous regulatory issues related to tokenizing real estate, notably if we are talking about the global availability of such assets.
For now, it will be difficult to usurp the traditional securitized real estate investment trusts (REITs). Realty Income Corp., offers Retail Stores REIT investment and currently trades at around $62 per share with monthly dividends of about 0,3% – 0,4%. Simon Property Group also pays out quarterly dividends of 1%-1,3% and the price of approximately $164 per share at the moment of writing.
I can purchase it with a couple of clicks using the mobile application of my bank with no legal complications and even my taxes are paid automatically from the profits received.
There’s no doubt that tokenized assets are the future and it might be much more convenient and even possibly more profitable to the holders. However, there’s still a long way ahead for it. So let’s hope that an infinite number of passionate brainiacs invading the space will have enough energy and determination to figure it out. I keep my fingers crossed.
And what do you think of tokenized real estate investment? How long will it take us to get there? Go ahead and share your thoughts in the comment section below.