Owning or investing in real estate, while intriguing to most, comes with many problems such as illiquid assets and transparency issues. Blockchain real estate investment opportunities are working to solve this.
In this week’s Property Experts Cyprus article, learn more about the issues with traditional real estate investment, explore the ways in which blockchain is revolutionizing the real estate industry, and discover the advantages you gain by using blockchain technology for property investment.
Challenges with the Traditional Real Estate Industry
International real estate has been a fascination for many people. However, traditional real estate investment for both private and commercial real estate has had many challenges. Of the most common is the issue of transparency. Many real estate deals require paperwork and a lengthy legal process. Most often, this is where errors occur and property buyers end up facing fraudulent practices. Dishonesty in real estate purchases is all too normal in daily practices, and many property investors find themselves accidentally in illegal territory.
Further, real estate transactions are costly endeavors that require property owners to hire outside help to make the transitions possible. This results in high fees for outside help, paying broker fees, attorney fees, and exchange or transfer fees associated with the required middleman.
Another downfall of the traditional real estate industry is the lack of liquidity of assets. Property owners do have a tangible asset, but that asset is illiquid when it comes to global real estate. Commercial real estate can become a risk to investors as the value is both centrally owned and more complicated to buy or sell. Moreover, a property can become difficult to convert into cash value.
Since there are many barriers to entry into the real estate market, many potential investors are not interested in investing in properties outside of where they live and fees or regulations can bog down the process. Real estate investment can seem out of reach.
This is where blockchain real estate investment is filling the gaps of traditional property investment methods and opening up the market to many new owners.
Real Estate Investment & Blockchain – How Does It Work?
Blockchain platforms allow for property transactions to occur digitally and in real-time. Property owners are able to invest in property around the world and reduce the risk associated with investing in international real estate.
Blockchain technology turns the value of the property into tokenized real estate. It is a time-stamped system of technology that keeps an immutable record of data. This is managed by computers rather than owned by any one party. Decentralization, transparency, and immutable data are all hallmarks of blockchain-based platforms.
The value of a property can be converted into tokenized currency, allowing anyone to buy a real estate asset. Instead of one central property owner, there is now fractional ownership of a single property. Global real estate as well as corporate real estate are accessible to anyone willing to invest around the globe. Moreover, the investment is shared between individuals, and all the parties involved are put into a more democratic and transparent investment system.
Blockchain real estate investment is different from Real Estate Investment Trusts (REITs). REITs were established in the 1960s as a way to provide fractional ownership on multiple properties in one portfolio. A corporation owns, operates, or manages income produced from real estate investments, usually for high maintenance fees. Investors also lose out on some of their profits as the corporation takes a cut of any income earned on the portfolio.
Blockchain real estate investment is also different from tokenized real estate. Since two-thirds of the world’s wealth is in the form of securities and real estate, as opposed to cash, blockchain technology can help make these illiquid assets more liquid.
Tokenized real estate takes already developed real estate properties and turns them into security tokens. These tokens turn illiquid assets into digital assets that can be divided and managed under fractional ownership with the help of smart contracts.
All blockchain technology utilizes smart contracts. These are written codes that self-execute instructions without outside interference. When certain criteria are met, they perform certain tasks while at the same time recording the data. They cannot be manipulated or undermined, which gives users a clearer account of the situation and provide more trust in real estate property transactions.
Blockchain real estate investment can occur more broadly than REITs and tokenized real estate and can also be used to develop new projects such as what is happening in Cyprus. Jur is the first company to introduce Secure Commercial Agreements in commercial-related real estate investments in Cyprus.
The first of its kind, Jur is using blockchain in its process to make computer-generated contracts for business relations, making the entire process smoother and more compliant while aiding in the investment in Cyprus property worth over 160 million Euros.
With the introduction of Jur, other developers and real estate companies in Cyprus are interested in continuing the trend of using blockchain real estate investment technology. Work is being done on the legal implementation of accepting cryptocurrencies.
This trend could make it quite interesting for Cyprus, which already has attractive residency by investment program. The government has taken an interest in drawing investors to the country and the real estate industry has benefited. Blockchain technology could continue to expand the Cypriot real estate industry in the future.
5 Advantages of Using Blockchain in Real Estate Investment
Several blockchain real estate investment companies are already putting these principles into action. Blockchain-based real estate is becoming a new trend for peer-to-peer interaction within the real estate industry with its many advantages to investors.
1. Reduced Risks and Costs
The first advantage is its reduced risk to potential investors. Since the value of the property is now liquidated, investors are able to buy and sell their tokens of investment in real-time, legally. There are fewer risks to commit fraud or engaging in shady business practices.
To help reduce the risk for all parties involved, the smart contract system of blockchain technology removes the risk of tampering or manipulation of the data. Property owners can trust that their blockchain real estate investments are secured, easily acquired or transferred, and in compliance with international real estate practices.
More importantly, real estate assets are not controlled by intermediaries. Instead, brokers, lawyers, and banks usually involved in the traditional real estate industry play a less direct role in blockchain real estate investment.
New platforms are able to use blockchain technology to provide property listings, facilitate payments, and assist with legal documentation. In the long-term, buyers and sellers get more value for their money as they reduce the costs associated with needing middlemen to negotiate and manage real estate investment opportunities.
2. Liquid Assets Through Tokenization
Another advantage of opting for blockchain real estate investment is the liquidation of assets. Real estate transactions increase the liquidity of international real estate. These properties have tangible value but are hard to turn into cash.
Through the tokenization of the value of the property, all parties involved have a liquid real estate asset easy to acquire, adjust, or sell. At any point, a real estate investor may choose to buy more tokens in a property, sell some, or sell all of a particular property’s tokens. This completes an immediate transfer of wealth directly between peers.
The traditional method of purchasing real estate can be extremely slow. In an international travel survey by Juwai, over a majority of Chinese investors spent more than a year trying to find their ideal investment property in the United States. Over 70 percent of those surveyed expressed an interest in considering the purchase of overseas property in the near future regardless of travel.
Blockchain real estate investment opportunities can increase the time for property purchases or transfers, provide value to an immovable good, and increase the odds of overseas property investment.
3. Great Transparency and Trust with P2P Ownership
As blockchain platforms are immutable through a series of coding, property owners gain greater trust in the real estate industry. Data is transparent and transactions are open for review.
Peer-to-peer (P2P) ownership ensures that fewer errors or fraudulent practices are occurring. Blockchain technology improves the overall health and perspective of the real estate industry through the sharing of data on global real estate transactions.
4. Open to Everyone
Where traditional real estate investment practices were exclusive, blockchain technology makes it easy for anyone interested in global real estate investment to become involved. Blockchain platforms enable potential investors to decide how much they are willing to invest as well as to diversify the properties they invest in.
Commercial property or private property ownership isn’t the only option available to interested investors. Even peer-to-peer rental markets are emerging using blockchain platforms and reducing the barriers to the crowdfunding of new properties.
5. Decentralization with Fractional Ownership
If blockchain technology is not changing the landscape of real estate investment enough, it is also decentralizing ownership of property worldwide. Instead of a single investor, blockchain allows for many parties to be involved in the ownership of a property. This is known as fractional ownership.
Fractional ownership is making the entire process of real estate investment more democratic as the wellbeing of a property is held in the hands of several parties. Transparency and accountability play a more important role than ever before.
If a property should become less than ideal, blockchain technology allows it to be transferred to new owners quickly and cheaply. On the other hand, an ideal property can see a boost in investment opportunities and new properties can find multiple sources of investment relatively easily.
Blockchain real estate investment is a cutting-edge way to become a property owner and make the most of your investments. Tokenized real estate has many advantages and reduces the risk associated with property transactions. With peer-to-peer technology, you can increase your wealth and secure your place in the international real estate market.
Property Experts Cyprus can help you find the right property to invest in and answer all your blockchain real estate investment questions. Contact us today to find properties to invest in Cyprus or to get started on building your real estate portfolio.