By: Leah Golubchik
Although the real estate industry has traditionally depended on face-to-face interactions, firms have been forced to reshape their structures due to the Covid-19 pandemic. As the real estate market continues to adapt to changes in response to the pandemic, the industry has become more reliant on technology in all sectors. One of the newest advancements to make its way into the field is blockchain, which has revolutionized the real estate market. This digital-asset craze has continued to skyrocket over the past few years, and has infiltrated both personal and commercial real estate investing.
Real estate investing has numerous drawbacks that prevent structured and accessible movement of transactions. For example, the industry has high barriers to entry due to extremely high capital requirements. Further, economies of scale play a part in real estate investing, as well-connected firms and individuals have access to greater opportunities, which can even include off-market transactions. Lastly, real estate is vastly illiquid, making it hard to divide and convert its value, therefore it is usually not owned in shares.
However, as this new technology penetrates the market, such disadvantages of personal and commercial real estate investing seem to shrink. Blockchain allows for a streamlined system of both information and value that anyone is able to obtain, as it is not possessed by a single entity. Furthermore, it eliminates the need for a middle man through smart contracts, which allow assets to be tokenized and be traded on the blockchain. This reduces the fees and commissions that these intermediaries charge, and makes the process much quicker. The decentralization of blockchain makes it highly transparent and immutable, which establishes that processing of financing and payments is more secure. The illiquidity issue is also solved with this technology, as tokens allow for real estate to be easily traded. This also opens up the opportunity for crowdfunding and fractional shares, as more investors will be able to participate in deals due to lower ownership liabilities and capital requirements. All of these advantages of blockchain lower the barriers to real estate investing and ensure the entire process of buying and selling these assets is dynamic and efficient.
The benefits of implementing blockchain into real estate investing are clear, but how have these developments emerged in the real world? Just earlier this year, the mayor of Miami suggested authorizing residents to pay property taxes or city fees with cryptocurrency. Soon after that, an anonymous buyer purchased a Miami penthouse paid fully in cryptocurrency for $28 million, which was declared “the most expensive known residential crypto real estate transaction in the U.S. to date.” In the commercial world, commercial real estate investor Aviva Sonenreich describes how online marketplaces are influencing this sphere, “For example, ATLANT is a platform that tokenizes properties; the trading can all be done online, and the tokens can be exchanged for fiat currency. From my perspective, understanding the value in tokenizing real estate is just the tip of the iceberg when it comes to the future of partnerships and investments on the blockchain.” New technological developments in the real estate industry are appearing everyday, and everyone is anticipating what the future of real estate transactions on the blockchain will look like.