Real Estate Investor Magazine South Africa November 2018 | Page 17

TECHNOLOGY
I
n Part 1 of this series (found in
the September issue), we looked
at how blockchain technology will
transform the way land ownership and
title deeds are transferred, recorded,
and protected. In this part 2 (found in
the October issue), we focused on how
blockchain based real estate transac-
tion would look like when utilizing
smart contracts and what the impli-
cation of this would be. In this part,
we will be looking at how blockchain
technology could impact liquidity in
the real estate investment industry.
Before we offer a glimpse into what
the future of real estate investment
might look like, it is worth highlighting
how the industry is constructed and
deals with new technologies today.
Real Estate is the largest asset
class in the world, with an estimated
value of $217 Trillion in total. Of
all this value, only 1% changes hand
each year. Although Real Estate is a
popular investment class and even
on small-scale remains one of the
most reliable ways for individuals to
boost their personal wealth, real estate
investment is complicated, convoluted
and expensive. This makes it, by far,
the investments category with the
biggest barrier to entry. The cold fact is
that most of the industry still runs on
hard copy paper and Microsoft Excel.
Research shows that there is not only
a lack of innovation but also a lack
of understanding of what innovation
is and its potential impact on the
industry
Why is this a problem?
Well, if we consider that the global
real estate market is estimated to
be worth over $200 trillion dollars
and only 1% is being moved and
transacted, there is a largest sum
of illiquid assets sitting there on
the balance sheets of corporations,
investment firms or individuals. With
only 1% of the world’s property being
traded, however, a comparatively
small amount of people is granted the
capacities to benefit from real estate
trading and investing.
What are the entry barriers
excluding so many peo-
ple from investing in real
estate?
High minimum investment.
The world of real estate investment
is comprised of increasingly-high
‘buy-in’ prices. Whether you’re an
individual or an organization, if you’re
looking to purchase or trade real
estate, a large, concentrated sum of
capital is required. Naturally, not every
small-scale investor has access to this.
Opportunity.
Even if an individual does have
the required capital to invest into a
piece of real estate, most investment
opportunities sit outside of a person’s
immediate periphery (country, city or
neighbourhood), where they don’t have
the necessary know-how, connections
or entry-ways to possible investment
opportunities.
Liquidity.
Arguably one of the most important
barriers to entry for small-scale
investors into the world of real estate
trading is that of liquidity. Due to the
large, concentrated sum of capital that
goes into real estate development in the
form of brick-by-brick construction,
investor money is often ‘locked up’
for a period of several years, rendering
such capital as fundamentally ‘illiquid’
within that time frame.
High trade cost.
The fourth major characteristic of
the current real estate market is that
of commission fees and middlemen.
Current trading practices and local
rules and legislation require a lot
of administrative hassle, which in
conjunction with third-party agents
or “middlemen” result in extensive
costs that further decrease the net
profitability of your assets.
SA Real Estate Investor Magazine NOVEMBER/DECEMBER 2018
15