The newly published report analyses the various issues hampering real estate markets and shows how tokenization, the process of digitally representing the ownership of assets on a distributed ledger, provides a way for the real estate industry to surmount commonplace obstacles in relation to both issuance, shareholder management, and trading. The automation of back-office processes is one of the main advantages of tokenization, as argued in the report, which can significantly reduce associated transaction costs.
Another problem afflicting today’s real estate markets relates to liquidity. Resulting from the labor-intensive and costly processes of being listed on public exchanges, often costing up to 3% to 10% of the asset’s value, a lot of real estate investment firms, funds, and trusts omit the public market. By bringing real estate onto the blockchain, liquidity can be induced. Investors can start trading in a peer-to-peer fashion without counterparty risk, while digital asset exchanges help facilitate near-instant transaction times and offering greatly reduced trading and listing fees.
Up until today, non-accredited investors have largely been prohibited from trading and investing in real estate, with 93% of all U.S.-registered commercial real estate exclusively being targeted accredited investors. Tokenization can lower the barrier to investment and thereby open the floodgates for retail investors to enter the space and park their hard-earned money in yield-generating, safe assets.
Having recognized the strong value proposition of real estate tokenization, global financial institutions, real estate developers and investment platforms are quickly adapting to the emerging markets of digital assets. Estimates suggest that the STO market will continue its aggressive expansion and reach a total valuation of $16 trillion by 2030 from $0,31 trillion today.
The prevalence of outdated requirements and lack of regulatory clarity may, however, complicate the issuance of real estate-backed tokens. Consider, for example, the requirement for notarization to effectuate transfer of rights, the non-recognition of digital shareholder registers, or the legal uncertainty with respect to enforceability of smart contracts; common regulatory hurdles that thwart the issuance of security tokens. The report offers a non-exhaustive list of suitable jurisdictions that avoid the typical pitfalls of tokenization either through introduction of dedicated digital asset legislation or targeted removal of obstacles to tokenization.
The digital asset space is just warming up and with a dedicated focus on tokenization of real estate assets, DigiShares has positioned itself at the forefront of a financial revolution. Being the world’s biggest and most important asset class, real estate represents a total value of $326 trillion. The U.S. real estate market is the world’s biggest with a total market valuation of $49 trillion, while the European real estate market ‘only’ represents $37.5 trillion with commercial real estate comprising roughly 20% at $7.5 trillion. In 2018, the Nordic countries saw a total of $53.40 billion invested into Sweden, Finland, Norway, and Denmark.
The industry report can be obtained by request on the DigiShares homepage: https://digishares.io
DigiShares is a blockchain-based white label solutions provider for security token issuance and corporate management. The platform works with asset managers, investment fund managers, real estate developers, renewables project developers and other companies seeking more efficient ways of raising capital and managing investors.