Blockchain technology has the ability to change the parameters of the traditional world, making out-of-the-box ideas a reality. The real estate market in particular has many limits, including a lack of liquidity, as well as a cumbersome ecosystem that could be made to be much smoother. As such, blockchain technology has the potential to unlock the true potential of the real estate market.
Inefficiencies in the Current Real Estate System
In the real estate industry as it currently exists, investors are often required to invest in entire properties. There are only so many investors with enough capital to invest in real estate, due to the fact that even the most affordable properties can be very costly, compared with other investment options.
Additionally, there are no exchanges or simple ways to buy, sell or trade real estate without excessive time restraints and complications. Stocks and bonds, for example, are much easier to deal with in this regard, since they are much more liquid.
Real Estate Investment Trusts
Many people point to Real Estate Investment Trusts (REITs) as solutions where individuals have greater ability to invest in real estate. However, with REITs, investors are still highly limited in their options and potential for returns, with high costs associated.
“Due to the high costs to set up and manage, as well as [the] many restrictions on how and what a REIT can invest into, investors are typically only offered a 4-5% annual return,” according to a blog post from the blockchain solution RealFuel . “Also investors typically cannot invest directly into a single asset (or a development project for that matter) but only into a ‘basket of assets/buildings.'”
Blockchain technology grants the ability to unlock the potential held within the current real estate market, introducing a whole new world of liquidity and opportunity for investors.
Benefits of a Blockchain-Based System
In simple terms, blockchain application could allow real estate ownership to be delegated, traded or decentralized in other ways via tokens that represent fractional ownership of the underlying property or asset. These tokens could be traded on exchanges, transferred person-to-person or individually owned.
Propy, a blockchain solution for real estate, stated in its 2017 white paper that “the…