Tokenized property remains niche, largely due to its relative novelty and remaining regulatory uncertainties. Yet a new report has noted that even if just 0.5% of the total global property market were to be tokenized in the next five years, it would be on track to become a $1.4 trillion market
In recent years, the total value of the global real estate market has hit a staggering $280 trillion, eclipsing most other major asset classes and on par with the value of total global debt accrued by 2020. Moore Global, a London-born international advisory and accountancy network, has published a report collating expert opinions worldwide on the potential of tokenization for this thriving, if traditionally illiquid, asset class.
For Dan Natale, Moore Global’s real estate and construction leader and a managing partner of Segal LLP in Toronto, blockchain’s key benefit to the sector is a boost to liquidity by providing efficient, disintermediated infrastructure to underpin new secondary markets. David Walker, a managing partner of Moore Cayman who works as an auditor specializing in digital assets, has for his part claimed that the transparency and security of the technology also offer evident advantages from an auditor’s perspective.
Until now, the expansion of real estate tokenization has fallen short of expectations, due in part to institutional investors’ hesitancy and the absence of established secondary markets for security token trading. This, however, may be gradually changing, with the United Kingdom’s Financial Conduct Authority granting an operational license to digital security exchange Archaz in August of last year. One year prior, Germany’s Federal Financial Supervisory Authority (BaFin) had approved its first blockchain-based real estate bond, issued on Ethereum.
Andrew Baum, director of the Future of Real Estate Initiative at Oxford University’s Said Business School, thinks that tokenization in real estate could finally take off if there is evidence of investor demand for fractional ownership – something that advocates of tokenization have championed since 2017.
Last summer, a security token representing fractional ownership in the luxury St. Regis Aspen Resort in Colorado went live on Overstock’s regulated tZERO exchange, attracting record trading volumes. Within less than a month, however, with the token seeing a relatively flat performance amid the coronavirus slowdown, investors were being offered major discounts on their stays at the resort to help boost the token sales. tZERO has nonetheless recently struck a partnership to tokenize $18 million worth of shares in NYCE Group – a platform hyped as a potential “Robinhood of real estate investing.”