How Tokenization Is Decentralizing Real Estate Investments
>> This article is for informational purposes only and is not financial advice. The information does not constitute investment advice or an offer to invest.
The 2008 collapse of the housing market was a monumental event with devastating consequences for ordinary homeowners and for the entire economy.
A potent combination of shoddy lending practices, rapidly rising home prices, and unaware consumers helped create one of the most severe economic downturns in American history. According to data compiled by Business Insider, the percentage of people renting rose by more than 5%, and, in the hardest hit cities, foreclosures jumped by nearly 10% in the years following the housing market collapse.
Fortunately, after years of slow recovery, the real estate market is roaring back to life. Fortune reports that the total value of U.S. real estate increased by 6.5% last year, an incredible $2 trillion addition to the country’s real estate portfolio that now sits at nearly $32 trillion.
Although some metrics like the rate of new applications for home mortgages are declining, the real estate market appears to have fully recovered from its collapse.
To be sure, real estate isn’t the only investment that’s appreciating right now. In fact, the market is sharing the stage with another asset class that’s also enjoying a rapid escalation in value.
Cryptocurrencies and the blockchain, the accounting backbone for digital currencies, are increasing in value at a prolific rate, and the past 18–24 months have been particularly prodigious. Since the beginning of 2017, the crypto market cap* rose from $14 billion to over $132 billion. For established tokens, the market has settled. And, while it’s now valued less than half of its much higher peak, that growth still represents excellent momentum in a short period of time.
Meanwhile, investment in new digital currencies is attracting considerable attention. In 2018, new blockchain-based companies raised nearly $21 billion through the Initial Coin Offering funding mechanism that launches new cryptocurrencies.
As different as the crypto and real estate markets may seem, these two industries are not disparate at all. In fact, the two sectors will impact one another in profound ways. Cryptocurrencies, powered by blockchain technology, will decentralize the real estate market, which will make it more available to more people.
For many people, real estate represents a growth-oriented, stable investment. Unfortunately, real estate markets have several inherent qualities that make it challenging to capitalize on its proliferation. For example, unlike other investment assets like stocks, real estate investments take time to accumulate, and they can’t be immediately liquidated.
Moreover, for the average investor, real estate investment isn’t a realistic opportunity. Because investors are purchasing an entire property, there is automatically a high cost of entry, and the accompanying legal fees and administrative costs make the process even more costly.
As a result, real estate investment is typically centralized among big banks and extremely wealthy individuals who can afford the high cost of doing business.
The emerging crypto economy makes it possible to reimagine real estate investment for the digital age.
For instance, on the blockchain, real estate assets can be tokenized and traded so that a property’s value can be bought and sold like other digital assets. What’s more, real estate can be divided into shares, so it can be purchased and traded at different levels.
In other words, investors don’t have to buy an entire property, which means that more people can participate in the markets.
Furthermore, the blockchain’s technological features like smart contracts and the distributed ledger can facilitate trades and transactions, eliminating third-party officiants and reducing overhead including broker fees, escrow holdings, and closing costs.
This method of facilitating real estate investment more closely resembles stock trading or other more liquid investments that are broadly accessible to more people.
Experts and pundits alike are pontificating on the possible implications of the blockchain, and it’s clear that it will have a profound impact on numerous industries. The decentralized ethos that dominates the blockchain community is wrestling control from established institutions, and it’s producing new, more equitable ways of doing business.
For real estate investors, it presents an opportunity to attain a cheaper, more usable investment asset. By moving real estate investment onto the blockchain, the process can be more efficient, secure, transparent, and, most importantly, accessible.
Investments don’t become less valuable when more people gain access to an asset. Instead, the increased demand encouraged by broad access to real estate markets creates a better, more lucrative experience for everyone involved. That’s the underlying premise of the blockchain. It’s a disruptive force, but that disruption has benefits that extend to everyone, a sentiment that will soon be seen in the real estate sector.
*Market cap as of article submission date 2.19.19 via https://coinmarketcap.com/
Disclaimer: Virtual currency is not legal tender, is not backed by the government, and accounts and value balances are not subject to consumer protections. This article is for informational purposes only, and is not financial advice. The information does not constitute investment advice or an offer to invest.
Originally published at news.caviar.io on February 22, 2019.
