Real Estate Investor Magazine South Africa November 2018 | Page 18

TECHNOLOGY
How can blockchain technol-
ogy solve this?
Real estate will be digitized in the
future. Recordings will be digital, deeds
transferred via the blockchain, and
real estate assets will be tokenized and
traded via smart contracts. Blockchain
technology allows for the above-
outlined challenges to be overcome.
“To recap from part 2 of this series,
a smart contract is an immutable
program stored on the blockchain. This
decentralized contract or application
allows agreements between parties to
be expressed in programming language
and executed transparently without
the need for a trusted intermediary.
General
Applications
Vertical
Applications
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If sensitive processes, from value
transactions to ownership transfers
are externalized as smart contracts,
this creates a very high degree of
transparency, trust, and neutrality.”
This is where the notion of
‘tokenisation’ comes in. This can be
understood as the converting of an
asset into a digital ‘token’, created,
transferred and secured via immutable
smart contracts.
“
By tokenizing real es-
tate, you don’t need to
immediately sell off the
full asset, but can make
parts of the asset liquid.
“
Diversification.
The final barrier to entry that I’d like
to emphasize is that of diversification.
Because the current real estate
market requires sizeable investments
and capital injections, it becomes
difficult for investors to diversify their
portfolios. This is especially the case for
the vast group of ‘small-scale’ investors
that would like to diversify their
portfolios with real estate, but aren’t
able to due to its almost-impenetrable
nature.
To summarize, the current global
market for real estate trading is marked
by various barriers to entry that result
in the limited access to investment
opportunities for those looking to
invest in real estate, with an emphasis
on small-scale investors.
If real estate assets could be
‘tokenized’ so
that
investment
opportunities are represented as their
own digital tokens, then investment
deals and trading opportunities could
easily be facilitated via smart contracts.
This cuts out the traditional processes
required for a real estate ‘deal’ to
go through. In other words, when
envisioning an inevitably ‘decentralised’
future, the combination of smart
contracts and ‘tokenization’ within the
context of real estate trading enables
us to move away from the dominant
reliance on notarized documents,
lawyers, surveyors, and banks. In their
place, we’d have a more secure, less
corruptible ecosystem of investment
opportunities facilitated by smart
contracts.
We could then have a real estate
exchange that could seamlessly connect
real estate developers, owners, and
investors, regardless of investment
capacity or physical location. This
will bring us several steps closer to a
global real estate market that is not
only transparent but fundamentally
accessible and inherently liquid.
‘Liquidity discount’ is a well-
known phenomenon in the real estate
space. Essentially, because large sums
are required for certain real estate
investments, the amount of capable
(‘liquid’) buyers able to purchase
real estate is limited. For example,
if a property were on the market for
R100M, only a small pool of potential
investors would have the means to
invest. This results in a ‘buyers’ market,
whereby a real estate seller is forced to
lower their price (and offer a discount),
in that limited liquidity exists for
buying the real estate in the first place.
With tokenization of real estate,
an investment opportunity can be
presented to a larger group of investors
by means of a fractional ownership
model. As a result, more ‘liquid’ cash
Company A:
Wallet Company B:
Legal Company C:
Asset
Management Company D:
Idea registry
Bitcoins Contracts Inventory Intellectual
property
Company E: Supply chain management system
NOVEMBER/DECEMBER 2018 SA Real Estate Investor Magazine