The real estate industry has traditionally been known as slow-moving, loaded with paperwork and only accessible to the investors with the biggest bucks in the room. However, that narrative has been slowly changing, with blockchain technology being at the centre of renewing how people view the real estate industry. It is no longer just about the elite; now, the door is being opened wide to accommodate a wider range of investors.
Cryptocurrency, something that was once thought to be understandable only by tech enthusiasts, has now become a global phenomenon, taking over almost all industries. For example, Binance reported that Michigan had passed a bill allowing up to 10% of state funds to be held in Bitcoin and crypto. The assets would serve as a long-term strategic reserve, aligning with moves by states like Texas and New Hampshire. Right now, investors from all over the world are keeping up with cryptocurrency prices, with the aim of taking advantage of the increasing value of tokens.
In the real estate industry, blockchain technology and crypto are changing the normal day-to-day operations. For instance, Dr Shahid Hussain Kamboyo suggests that the way to help out Pakistan’s real estate problem is to deal with how it is managed, documented and transacted. The real estate industry in the country, which was once seen as a pillar of economic stability, is now struggling with issues of credibility. However, crypto and blockchain are slowly transforming the industry through ideas like tokenisation. That and more will be discussed further in the article.
Smart contracts are making transactions easier
When you think about real estate transactions, you think about months of lawyers and paperwork. Especially if it is a luxury property, then the time might even be longer due to the stakes. However, the blockchain world is quickly turning that narrative around.
Since they were introduced to the real estate market, smart contracts have been playing a significant role by acting as a marketplace where agreements are executed. Normally, you would need a third party (a lawyer) to ensure that the deal is sealed with no cracks. However, with smart contracts, the need for a third party is greatly reduced. But how do they work?
If John wants to sell his property, he will create a bid for it using a smart contract, which will, in turn, find an appropriate match and link both parties. The technology digitises the property and transfers the ownership of the property in exchange for the asset value. When the ball is set rolling, the transaction cannot be altered until it is recorded properly on the blockchain. The leading blockchains that are being used for real estate transactions include Ethereum, Cardano and Solana.
Since smart contracts remove all the intermediaries involved in property transactions, the process has become faster than ever. For example, the sale of a penthouse in Miami, which was conducted purely in crypto, was settled in a record time of less than 10 days. Normally, a transaction of such nature would take weeks if not months to complete.
Tokenisation is running the show
Most of the time, when you mention real estate among people in the middle class, that discussion might even die before it even starts. And why is that the case? You see, it is a common thing that real estate owners are mostly high-net individuals who have the funds to purchase costly property.
However, tokenisation has been changing how investors interact with property, since now you can own a small portion of that coveted property. According to the findings by ScienceSoft’s research team, the value of the tokenised real estate might reach $3 trillion by 2030.
The fact that you can own a fraction of a luxurious property attracts many small investors into the real estate industry. Many real estate firms have realised that this is the way to go, and as a 2024 Deloitte report revealed, 12% of them all across the world have already implemented tokenised solutions. The study showed that a further 46% of the firms were already on the pilot stage.
It is interesting to note that many high-net-worth (HNW) and institutional investors consider real estate among the most attractive tokenised investment options. As of 2023, a study by EY reported that at least 80% of HNW had already invested or were planning to invest in such assets. What is making this even easier is the fact that you get to buy using crypto (this is preferred by many HNW individuals who own crypto tokens).
Nations all over the globe are giving tokenisation a shot to see whether it is the solution to their failing real estate markets. For instance, the Securities and Exchange Commission of Pakistan (SECP) launched a Regulatory Sandbox that would allow financial technologies like real estate tokenisation to be tested in a controlled environment. Countries like Germany, Switzerland, the US and the UAE have already implemented this new form of investment.
As Yi He, co-founder of Binance, stated, “Crypto is the future of finance, it’s already reshaping the system, one day at a time.” This is holding true for the real estate industry, as more investors appreciate the technology behind it, as well as implement the use of crypto tokens for real estate needs. In the coming year, you can be sure that the real estate industry will be on a whole different level, thanks to crypto and blockchain technology.
