31. March 2023


The world is changing and accordingly the real estate industry, where transformation is being driven by all sides. The creation of the future of the real estate industry has just started. A recent report in Forbes emphasizes that the true disrupters of the real estate market have yet to emerge. The five most important trends leading to disruption are generative AI, Blockchain (Proptech 3.0 Evolvement), Decarbonization and Sustainability, Contech (innovation in construction) and capital flowing into Proptech projects. 
In this article, let us focus on the opportunities for the real estate industry through blockchain technology. Many experts are convinced that blockchain technology will revolutionize the real estate industry. Can therefore the emerging technology be leveraged to overcome today’s inefficiencies in the real estate industry? Many agree that blockchain technology overcomes the hurdles of traditional real estate investments by providing a new efficient, secure, and automated approach to real estate investments through tokenization. 

According to the World Economic Forum, the token market is expected to reach $24 billion by 2027, and 10% of global GDP is forecasted to be tokenized on a blockchain. Tokenization is the process by which any real-world asset, tangible or intangible, is digitized on the blockchain and broken down into smaller pieces, which are defined as tokens. A token represents a proportional part of the digitized asset and thus the owner of the token holds e.g., the associated property rights and/or other rights. Hence, in principle, everything can be tokenized, from tangible assets such as real estate, art, scarce and valuable resources to financial instruments such as debt, shares, bonds, securities, and others. 
The advantages of tokenization on the real estate industry are numerous. The first and biggest advantage is that it fractionalizes real estate i.e., breaks it down into small fragments. Therefore, for the first-time access to real estate can be provided to everyone with low capital requirements. The democratization of assets becomes a new reality.  Investors get access to new markets and assets, which were previously unattainable. Thereby, they can diversify their portfolios more effectively and reduce their risk. Tokenizing real estate results in an increased liquidity to enter or exit real estate investment at any time quickly and easy. The goal is to create sufficient liquidity that the tokens i.e., fragments of ownership, can be traded like shares on the stock exchange. An increased liquidity supports flexibility in investing with real estate. Tokenization moreover simplifies the process of investing in real estate and provides greater transparency by allowing investors to track their investments in real time. Using the efficient infrastructure offered by the blockchain technology enables that intermediaries and other third parties can be eliminated and by this many administrative processes. This results in lower fees and higher returns for the investors. Another advantage through tokenization is the increased security as tokens are stored on a secure distributed ledger that is more difficult to tamper with than traditional methods of record keeping. In addition, tokenization automates processes such as dividend distributions and reduces the amount of manual work required (especially in the legal area). 
The tokenization of real estate is a new revolutionary concept. Because tokenization of real estate is still at a very early stage, few have yet pursued it, although the potential is enormous. Real estate acts as the largest asset class with a market capitalization of 280 trillion, however less than 1% is tradable on an exchange. The high interest in real estate tokenization is underlined by the fact that real estate is the largest growing security token sector. Thus, tokenized real estate, as it is backed by real assets, is likely to be the largest and most "urgent" sector for future security token offerings.
Our extensive market research has shown that many approaches to real estate tokenization that have been tried so far have failed. This is because many questions, especially around regulatory issues, remain unanswered. At Club Estate we believe that a uniform and standardized regulatory framework for digital assets is indispensable. Initial efforts are being made in this direction. The European Council will adopt and implement the eagerly awaited Markets in Crypto-Assets Act (MiCA), which will come into force around 2024. The primary goal of MiCA is to protect consumers and investors from the growing risks of digital assets while also increasing financial stability within the entire crypto market. This Act will support quick cross-border transactions, which today are difficult to execute, as all countries involved in the transaction must accept the conditions of the respective national laws. The FTX fraud reinforced the need for clear regulatory rails and stronger customer protection in crypto. Clear, standardized regulation will increase trust for regulated exchanges. Greater trust will result in more investors and thus in much higher liquidity on the exchanges.
At Club Estate, we believe that direct tokenization of real estate and high liquidity on individual properties will be one of the biggest challenges. However, we are convinced that real estate investors who embrace tokenization, especially an indirect portfolio approach, and optimally integrate it into their business model can benefit significantly from the numerous advantages it offers. Although still a relatively new concept, real estate tokenization will play an increasingly important role in the future of the real estate industry.