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The digitization of financial assets through Blockchain is coming, creating new markets in fixed income, real estate, art and other businesses.
In 2018, we saw the first offers of bonds, stocks and even luxury real estate condominiums. In 2019, an ecosystem of emission and trading standards will be established in several countries and regions with listings on new exchanges of tokenised assets.
In tandem, a standard for USD-based stable currencies will be established, creating a new level of trust in Blockchain-based transactions that will drive new levels of participation in blockchain-based asset markets.
An asset class that seems ripe for tokenization is real estate. Real estate investments are currently being discussed because interest rates are rising and further rate hikes threaten to stifle the financing of real estate projects and the ability of buyers to incur higher mortgage costs. Currently, the only tradable real estate assets are Real Estate Investment Trusts (REITs) and REIT ETFs. As an asset class, US-based REITs generally have one-digit percent annual returns. In this way, this year they outperformed the S & P 500 benchmark, but underperformed the big market gain last year. Overall, REITs are designed to be defensive investments for individuals and retirees. They are mature properties with high occupancy rates that pay rent and generate a steady income.
Regardless of interest rates, two major advantages of real estate tokenisation are:
1) Reduce the high friction costs inherent in most of the real estate transactions e
2) Increase the diversity of real estate investment projects and expand funding channels for them.
Real estate moguls and individual homeowners know that there are many complicated steps in buying and selling real estate to create the confidence to complete a transaction. Legacy practices involving accountants, lawyers, property insurances and other issues can all be standardized and detailed within the token created by the smart contracts and the immutable Blockchain ledger. The result is that friction and property purchase costs are reduced.
Coin-based properties will offer a much more diversified investment set than the current REITs. A real estate token can be a specific investment in a building or a small series of buildings, so an investor can invest in a specific way in a place he wants – like a new building in Dumbo, Brooklyn. The smaller investors who have always wanted to buy a condo or apartment in Miami will find a token version of that commodity that is easier to buy than current legacy practices that exist today.
And while REITs are "post-development" and are typically at lower risk, income properties, tokens may be of new projects that can generate a much greater return (albeit at greater risk) because the investor can buy it at a previous stage. The average investor is not able to access the funds that are building historic buildings or areas like the Hudson Yards in Manhattan – these are exclusive investments that only elite real estate companies can participate in. This may change as tokenization can split large projects and allow more investors to participate.
