The rise of crypto adoption in real estate could lead to fractional property ownership.
Blockchain technology is being adopted in areas such as fractional ownership of property and buildings. Tokenization is a net benefit for the real-estate space. It can be used to democratize access to real property investment and improve liquidity.
Another example of the emerging "sharing economy" is tokenization through fractional real property investment. This trend seems to encourage crowdfunded ownership and could help decentralize the global assets market across multiple sectors.
The digitization of real estate could be facilitated by Millennials, the first generation of digital natives who are now at their peak spending years.
Tokenized real estate investing has its own set of disadvantages, just as fractional ownership does. Due to the novelty of the enterprise financing options may be limited. This can lead to a lack of liquidity on the market and a deficiency in flexibility.
Fraction, a Hong Kong fintech company Fraction Group subsidiary, has been granted regulatory approval by Thailand's Securities and Exchange Commission for trading tokens that represent fractional ownership in physical and digital assets.
The approval includes tokenized investments in digital and physical goods. The fraction will, however, be focusing on fractional real property investment. Fraction is reportedly using an initial fraction offering (IFO).
In September, the company announced that IFOs would make it easier for potential investors to enter the high-end realty market. IFO tokens can be used to fractionally own luxury real estate listings starting at $150. This will likely lower the barriers to greater participation in this market.
Fraction had listed its first property, a condominium unit in On Nut in Bangkok, Thailand, on its proprietary exchange platform in January. According to the company's website, this involved digitizing the title deed and then fractionalizing the ownership. Finally, tokenized ownership was offered via an IFO.
Josh Stech, CEO, and co-founder of Sundae, a digital platform for residential real estate, spoke to Cointelegraph about the benefits of tokenization and fractional ownership. Stech stated that residential real estate investment is one of the best opportunities to create wealth, but it's only accessible to the wealthy.
"Tokenizing residential property on the blockchain has the promise of providing efficient and open access to the largest asset class in the U.S., not just for young people but also for anyone who wants the opportunity to invest in real-estate without the funds to complete an entire transaction."
Stech announced that tokenization, which leverages crypto and blockchain technology will lower the barrier to entry for investors in fractional Real-Estate investment. Sundae CEO said that fractional investments are possible through platforms and real estate investment funds, but they can be difficult to find, evaluate, and illiquid.
The market for real estate tokenization is still very young and a niche area. Industry insiders believe there is huge potential for growth. Moore Global, a British accounting network, estimates that the tokenized realty market could reach a valuation of $1.4 trillion by 2026. This is despite tokenizing 0.5% of the global property market.
The tokenized real estate market is promising, but there are some significant problems that must be addressed. These major obstacles include a lack of liquidity, especially in the secondary market. Institutional hesitancy is another.
Tal Elyashiv is the founder and managing director at SPiCE VC. Tokenization of fractional real property ownership still requires a lot of work. Cointelegraph was told by Elyashiv:
"I believe that in order to drive the real estate tokenization industry, there will be more institutional comfort with tokenized assets. Already, the market is seeing an increase in institutional-grade projects. Innovation is also needed in the space of dedicated real-estate platforms. These platforms allow investors to invest in tokenized real property assets without having to deal directly with the blockchain complexity strong>
SPiCE VC founder Elyashiv stated that dedicated platforms that trade in tokenized real property assets are crucial for increasing market liquidity. Elyashiv believes that such platforms will make token-based investing easier.
A few notable examples
Tokenized Real Estate is still fragmented, with different projects offering their own platforms and navigating vague regulatory requirements. There have been some notable developments in this market.
Overstock's regulated tZERO platform began trading a security token in summer 2020 that represented fractional ownership at a Colorado luxury resort. Despite the record-breaking trading volume, initial enthusiasm was dampened by market slowdowns caused by the coronavirus pandemic.
RealX, a fintech company based in Pune in India, launched a blockchain-based registry to allow fractional property ownership. Cointelegraph reported that tZERO also partnered up with NYCED Group, a Real Estate crowdfunding company, to tokenize $18million worth of properties.
The growing demand for fractional ownership could lead to greater adoption of tokenized property. Millennials are becoming the most important consumer group in the world. This could make it even more popular for investors to use investment vehicles that embrace the sharing economy ethos.
The shift toward access and away from the traditional ownership model that characterized the old economic model is responsible for the current rise in the sharing economy. This preference for services that are accessible has contributed in part to the success of neobusinesses like ride-hailing and content crowdfunding.
Service providers and the millennial consumer have likely found a way to use cryptocurrencies to enable token-based fractional ownership.