Real Estate Investment in the Blockchain Era

Investment in the real estate market has always been popular across the globe and among the majority of investors. Housing is an essential human need that must be fulfilled. Regardless of the location, size and quality of a house, there is always demand for real estate of any type in general and residential properties in particular. Hence, real estate investors can rest assured of a constant rental income stream on their investment and in most cases, they can enjoy capital growth over time due to several economic factors. However, investment in the real estate sector, like other sectors, comes with some cons and risks. Let’s dive deep and see what the major risks and disadvantages are and then figure out how blockchain is making the real estate market more efficient. 

Risks and disadvantages of investment in the real estate sector

1- Liquidity risk

Liquidity risk is the major risk associated with real estate investment. Despite the popularity, a property usually takes a considerable amount of time to be sold. Even if it might not be a headache for consumers, it definitely is for investors. There are several reasons such as affordability and geographical limitation that make the real estate market illiquid.

2- High in cost

There are many intermediaries in place in order to settle a real estate deal between a buyer and a seller. Banks, insurance companies, real estate brokers and lawyers will charge both parties for their services. If you add all these charges up, you will be surprised by how expensive buying/selling a property could be.

3- Less affordability

Investing in the real estate market needs a big amount of money. As an investor or a homebuyer, you must have access to at least hundreds of thousands of dollars in order to buy a property. That big barrier prevents a lot of investors from entering into the market. 

4- Low transparency

The traditional way of buying a property relies on humans and paperwork. Even though government officials have minimized the risk of human errors and fraud by appropriate legal system, the risk of fraud or error is still there, so the investors or buyers must be careful about the legitimation of documents and ownership. That is something that must be taken care of by lawyers, who charge you for their services and add extra cost to your investment process.

How blockchain changes the landscape of traditional real estate investment

Blockchain is streamlining and a lot of applications, based on the blockchain are coming out and surprising the market participants. Asset tokenization, as one of the most exciting blockchain applications, is now rising in popularity across the world. The concept is simple; by utilizing blockchain, almost all digital or physical assets can be tokenized and stored within a blockchain network. By doing so, the authenticity, ownership and trade history is securely maintained in the blockchain and while it is available to all market participants, the data can not be changed or replicated. Real estate properties, like other assets can be converted to one or multiple tokens. Asset-backed NFTs make the real estate sector more efficient by proposing great benefits to the real estate sector. Let’s now run through the advantages that blockchain is creating for the real estate market.

Blockchain benefits for the real estate market

Asset tokenization as an application of blockchain creates important benefits for the real estate market by removing the risks and cons associated with traditional ways of investment in the real estate sector. Let’s see how.

1- Improves liquidity

The NFT marketplace is not limited to borders and is open 24/365. Unlike the traditional real estate market that is limited to investors or buyers from surrounding areas or at the best case scenario from the same country, the blockchain real estate market is open to investors from all around the world. People are easily able to purchase a NFT that is backed by a property in Dubai or anywhere else in the world. More investors means more liquidity, doesn’t it?

2- Lowers the cost of investment

Buying a property needs a few middlemen like lawyers and brokers for settling a deal. It goes without saying that all those intermediaries charge you for their services. In the blockchain era, all those services are administered by computer programs called smart contracts. In other words, all paperwork and terms and conditions are designed and built within the blockchain network and automatically transfer the ownership from seller to buyer, once the terms and conditions are met. By eliminating the intermediary costs, investment in the real estate sector becomes more cost efficient.

3- Affordable for small-scale investors

In the blockchain era, real estate fractional ownership is easily possible. A luxurious apartment in Dubai Marina which would cost AED 10’000’000 can be converted to say 1’000 NFT. Each NFT represents 1/1000 ownership of that apartment and costs investors AED10’000. That is the magic of blockchain. Small scale investors will be able to invest in the real estate market and diversify their portfolio with small amounts of money and become the owner of a fraction of a valuable property. They will enjoy capital growth as well as rental income on a pro rata basis.

4- Enhances Transparency

All data stored within a blockchain network is available to the public, so investors are able to have full access to the history of a property NFT, current owner and a lot more. Data within the blockchain can not be changed or replicated, so the market is quite transparent.

Conclusion

The real estate sector and how people can invest in it and diversify their investment portfolio is facing big changes. Thanks to the blockchain technology, entry barriers have been lessened and the affordability to fractionally invest in the market is now increasing. There are a lot of opportunities in the market right now, however you as an investor must be vigilant about the project you are investing in, for the sake of safeguarding your money. It’s always a perfect idea to check with the government of where the actual tokenized property is located, to make sure the project has got the required allowances from the government officials and basically is actual!