Property is the world’s single largest store of wealth, and if the cryptocurrency and blockchain world is seeking an express route to mass adoption, it could do worse than partnering with the real estate industry.
According to a September 2021 report by Savills World Research, the estimated value of all the world’s real estate stands at $326.5 trillion. By comparison, crypto-sector market capitalization was about $1 trillion in mid-July.
The property market, moreover — at least its commercial real estate segment — is also characterized by costly entry barriers and asymmetrical information that favor insiders. Its fees are high, paperwork onerous, and deeds are sometimes defective, falsified or missing. Some properties can take years to move — another way of saying its market is illiquid. All in all, it isn’t surprising that many believe this market is ripe for disruption, particularly through blockchain-enabled tokenization.
This notion of tokenizing real estate isn’t entirely new. As far back as 2019, for example, a 6.5-million-euro villa in Boulogne, outside Paris, was tokenized. One million shares were put up for sale on the Ethereum blockchain, the first property in France ever sold as a blockchain transaction. An individual could have purchased a part of the luxury villa for as little as 6.5 euros.
Will everything be fractionalized?
Last year’s nonfungible token (NFT) breakout — and real properties are nonfungible, i.e., not interchangeable — along with some more supportive regulations, like Regulation Crowdfunding (Reg CF) in the United States, have trained the spotlight more squarely on crypto and property partnerships. This year’s metaverse hype, including Yugo Labs’ record-breaking virtual land auction, has not discouraged activity in the real property world, either.
“Web3 will be all about ownership, owning fractionalized shares,” says Bobby Singh, founder of the NiftySky DAO, speaking at June’s NFT.NYC 2022 convention, which featured an entire track on tokenized real estate. “Imagine fractionalizing the Empire State Building into 2 billion shares.” An individual could own a piece of the Empire State Building for several dollars.
Ownership creates its own momentum, Singh continued. “If you become a collector, an owner, you’re more likely to talk about it.” More owners mean more excitement. “The concept of title is very important.”
“Blockchain has the potential to transform real estate,” Lamont Black, associate professor in DePaul University’s department of finance and real estate, tells Magazine. Real estate is all about records of ownership and how a property is financed, he explains, and “blockchain is ideally suited as a shared system of record-keeping for this type of application.”
Many of these principles are “already being applied to digital real estate in the metaverse,” adds Black, while the ideas behind Web3 — of which the metaverse is one part — “are very much rooted in ownership of digital assets, including basic things like personal data.”
“The efficiency and certainty that comes with tokenization is undeniable,” David Tawil, president and co-founder at ProChain Capital, tells Magazine, and this hasn’t been lost on the real estate industry.
A market that dwarfs the cryptoverse
If one accepts Savills’ numbers, the value of the world’s real estate is more than 300 times the size of the crypto and blockchain sector, which recently slumped below $1 trillion in market capitalization. That disparity hasn’t been lost on observers.
“If even just 0.5% of the total $280 trillion global property market were tokenised in the next five years, it would become a $1.4 trillion market,” wrote Moore Global, a global accountancy, advisory and consulting network in August.
Alternatively, if one uses Savills’ estimate of a $327-trillion market: If just 1% of the global real estate market were tokenized, it would triple the current market cap of the entire cryptocurrency world.