Tokenization is the fractional ownership of real estate, and while it’s been around for years, blockchain is taking it to a whole new level.
According to a report from Moore Global, an accountancy and advisory network, blockchain tokenization has emerged as a mega trend in international real estate because, in addition to enhancing liquidity, efficiency and investor pools, it reduces the cost of capital. With tokenization slated to comprise 0.5% of the $280 trillion global property market—or approximately $1.4 trillion—over the next half decade, Dan Natale, global leader of Moore Global’s Real Estate group, anticipates it’s the next great disruptor for reasons ranging from the creation of innovative financial products to easily divesting assets at both optimal times and prices.
“The technology allows you to take a hundredth interest you could never sell outside of larger transactions and trade it on a blockchain to another individual,” Natale told CREW. “It’s really going to democratize individuals’ abilities to invest in real estate. Today, if I wanted to invest in a real estate asset, say an office building, it would be pretty limited as to how I could do that—it would either be through a REIT structure or, if I’m a high-net-worth individual aware of a syndication deal and I’m invited to participate, I have the opportunity to invest there. Tokenization takes single-purpose assets and creates the opportunity to invest in that asset publicly. You make the financial information related to that asset available to the public and people can make decisions about if they want to buy or sell on that unit based on that amount, and it opens up opportunities for individuals which didn’t previously exist.”
These particular investments used to be the domain of large institutional players, but that individuals can now determine their investment trajectories is indeed a game changer. Investors have long been hampered by the fact that real estate is, by and large, an illiquid asset class, but Natale says that nascent secondary markets where property can be traded digitally will rectify that.
With a centralized deal-reporting database lacking and digital asset trading platforms operating disparately, it’s impossible to ascertain the exact value of tokenized global real estate, but Moore Global says it’s surged in recent years to comprise billions of dollars, adding that the value of individual deals is, for the most part, growing. Moreover, Moore says that institutional investors have mostly eschewed participation as they continue scrutinizing the burgeoning market and wait for the dust to settle on regulatory regimes, but tokenization has, in the interim, opened real estate to a wider swath of investors.
“I know exactly what I’m buying into and I can buy and sell as I wish based on the information available,” said Natale, “but we’re talking about replicating that opportunity on a blockchain rather than a public exchange with all its limitations.”