The real estate market is seen as a profitable avenue for investors wanting to have diverse investment options. But soaring house prices have overtaken wage growth, rendering home ownership almost unaffordable to swathes of the global population.
Tokenized real estate is a novel solution to this problem, opening the doors to fractionalized digital assets.
The concept means that buyers can opt in for a share of one chunk of real estate for as little as a dollar. They can then simply choose to sell their share as and when the value of the property rises or falls.
In 2021, accountancy firm Moore Global predicted tokenization is “absolutely going to be a disruptor in global property markets.” It would turn into a $1.4 trillion industry even if a small fraction of those markets were tokenized in the next five years.
We may be far from that target, but some companies are already using blockchain-powered tokenized models that allow users to invest in fractions of properties.
- Tokenized REITs, or Real Estate Investment Trusts: ownership of shares in a portfolio of real estate assets
- Tokenized rental properties: purchase tokens representing ownership either in a single property or multiple properties
- Tokenized mortgage-backed securities: acquire tokens representing ownership in a single mortgage or multiple mortgages, which gives access to the same rate of return as traditional MBS investments
Marius Grigoras, CEO of crypto launchpad for startups BHero, said he’s seen the direct impact DeFi is having on the real estate industry.
“The tokenization of real estate assets has introduced more liquidity and access to investments previously available only to high-net-worth individuals,” he told Blockworks.
Bob Ras, co-founder of Sologenic, a network for tokenizing securities, said tokenized real estate is gaining attention because smart contracts reduce the need for paperwork. They also cut down the cost, time and effort involved in buying property. Fractional ownership also offers investors exposure to high-value assets at lower costs.
“Rather than investing thousands of dollars, investors can participate with as little as a few hundred dollars. This trend is expected to continue, with more potential homeowners turning to tokenization for cheaper investment opportunities in real estate,” Ras told Blockworks.
Atlanta home tokenized on Ethereum
Fintech and single family-focused rental platform Roofstock recently sold a Georgia home to ReaIT, a platform that offers fractional real estate investment in tokenized assets. The transaction was facilitated via an Ethereum-based NFT on OpenSea.
ReaIT acquired the property from Rootstock so it could proceed to sell tokenized shares to investors, a novel way to allow investors in other countries access to equities originated in the US. The property, which was acquired for 218,000 USDC, saw some 670 unique token holders snap up more than 700 orders.
Selling rental properties as NFTs
Roofstock last month sold a home in Harvest, Alabama via NFT marketplace built by Origin Protocol to an unknown buyer. And last year, the same platform sold an NFT-based residential home for $175,000 to local real estate investor Adam Slipakoff.
Real estate startup Propy sold its first NFT-backed four-bedroom property in Florida in February last year. The winning bidder got the house for 210 ETH, or $653,000 at the time. Under the agreement, the NFT holder claims ownership via a limited liability company that holds title for the property.
Propy also facilitated the sale of TechCrunch founder Michael Arrington’s Ukraine apartment via an NFT, which had a starting price of $20,000.
Rental income by holding tokens
Tokenization company BinaryX recently put up a villa in Bali for $700,000 on its testnet, which is also expected to be listed on the mainnet.
Anyone who buys a fractionalized token becomes the villa’s co-owner in the real world and will be offered $6.25 rent per token.
Real estate NFTs can still flop
Shane Dulgeroff, a real estate broker in the US, wanted to jump into the world of tokenized real estate in 2021. He offered to sell a house in Thousand Oaks, California along with an NFT video of the house.
The offer saw a minimum bid of 48 ETH, or $117,000 at the time, on OpenSea, but Dulgeroff wanted a minimum of $2 million. Two years later, it has still not been sold.