Tokenization for land and real estate

Land and real estate are truly limited in supply—unlike many other kinds of assets. This makes them a highly valuable and highly sought-after asset class. Until we start tokenizing the moon and outer space, if you want to own some property, you’ll have to get your hands on the very finite earthly supply.There are many types of real estate assets: residential, commercial, trophy properties, raw land and farmland, and natural resources—all of which can benefit from tokenization. Here are some of the current problems in the industry…

Slow and complicated

Paperwork, hoops, red tape, waiting, more waiting—these issues can be found across almost all traditional investments and are one of the main things that blockchain and DeFi are trying to solve. But real estate is especially famous for being slow and complicated. It can take weeks and sometimes months to close on a real estate deal. You have to be both extremely fast at making offers and extremely patient waiting for everything to get completed and confirmed. This is true for pretty much all types of properties. Direct, peer-to-peer transactions and distributed ledgers speed things up and cut out a lot of the complications.

Trust and transparency

The number of intermediaries involved in a real estate deal is astounding. There is the buyer, the seller, each of their real estate agents, often a bank or other lending institution, inspectors, appraisers, contractors, subcontractors, and the list goes on. Each of these players has a role that requires information or confirmation from another. In short, there’s a lot of trust necessary in real estate. People can become unhappy quickly when loans don’t get approved, inspections don’t match expectations, and communication breaks down. Recording everything on a blockchain can make every step in the process easily verifiable and transparent.

High fees and low liquidity

“Closing costs” are all you have to say to someone trying to buy their first property to elicit a groan. Everyone involved needs to take their cut in a big transaction like transferring real estate assets. I think most people understand this without further explanation. Illiquidity is another thing that slows down real estate investors. Tokenization and fractional investment can free up liquidity and cut down on fees.

Saturated in debt

In the US real estate market, and some other markets around the world, debt is almost universal. For most people, it doesn’t make sense to invest in properties without debt—this is the game that fiat forces us to play. If you don’t want to lose, you have to bend the rules like everyone else by getting on the right side of inflation and leveraging today’s fiat in order to pay it back later with less purchasing power. This is what the government is doing on a large scale with the money supply and this is what most real estate investors are doing with fixed rate debt. Of course, this philosophy of debt runs counter to the philosophy of most crypto enthusiasts and hopefully, tokenization can bring value back to reality.

Regulation

In some real estate markets, there are so many government regulations that investors ignore property that would otherwise be highly in-demand. From rent control and eviction moratoriums to property taxes and states with lots of regulatory minutiae, owning property can be a bigger headache than it’s worth. By tokenizing properties and perhaps even smart companies, investors can buy into regulation-compliant real estate assets more easily.

Supply chain and building materials

Since the spring of 2020 when supply chains began to falter during COVID, everyone became painfully aware of how important commodity and retail supply chains are. Lumber famously skyrocketed along with other building materials. This created a domino effect of escalating construction costs, which suppressed housing supply even further during a shortage. Supply chain issues are still a huge problem and are contributing to soaring real estate prices. Tokenization for supply chains is one of the big trends to look out for in the near future [link to tokenization trends article].

Demand redistribution

Widespread remote work in 2020 also changed how people decide where to live. A year after COVID, 71% of workers who were able to work from home were still doing so. The ability to work remotely and the need to physically disperse drove down demand in highly dense cities as people moved to less populated states and areas like the suburbs. This may be lucky for investors in those areas with increased demand, but because real estate investing differs greatly state-to-state, city-to-city, and even neighborhood-to-neighborhood, investors have a lot of work to do to catch up with the mass migration. Tokenization lowers the bar for entering new markets as populations relocate.