Technological Innovation in Real Estate Investing. 5 Upcoming Trends |
Posted: April 8, 2020 |
The real estate has been a stable and profitable long-term investment, even despite the 2008 crisis. Shares in the Real Estate Investable Trust companies (REITs) outperformed the SP500 index over the last few decades, but the investment opportunities remained reserved for accredited investors. The sector also resisted bigger changes and trends because of its reliance on legacy systems like a land registry, notary contracts, and local regulation. Now, with the emergence of blockchain technology, big changes are coming to the real estate investment sector. Real estate tokenizationA significant trend to disrupt the property investment in the near future is the real estate tokenization. Tokenization is the process of creating digital tokens on the blockchain, which then serve as proof of ownership. You can think of a blockchain as a digital database that’s extremely difficult to alter, which makes it tamper-proof, globally accessible (for open blockchains), and more secure than standard databases. Tokens backed by real estate and other income-bringing assets are usually securitized to comply with securities laws. It means they can replace traditional security contracts between buyers and sellers and provide buyers with all the rights related to asset ownership like dividends and equity share. Property-backed tokens also offer a lower barrier of entry for smaller and retail investors who can now afford a fraction of assets. Crowdfunding real estate investmentsCrowdfunding of real estate projects and shared community ownership is another new trend that’s becoming popular among investors. Thanks to the usage of various financial instruments like LLC (Limited Liability Company) or SPV (Special Purpose Vehicle) orphan structures, investors can purchase a part of real estate equity or mortgage debt. Fractional equity ownership gives you the rights to rent profit and sales profits proportional to your shares. Dept ownership provides dividends from mortgage interest. Some companies, like Fundrise pool investor money and provide real estate crowdfunding investments via their own accredited investor or broker accounts. Others, like EquityMultiple, require proof that you are an accredited investor. Alternative platforms, like Cocoricos, use the blockchain tokenization technology and allow retail investors to participate upon the standard KYC onboarding. Green and sustainable real estateThe currently largest adult population, the Millennials, are finally wealthy enough to purchase their first residences, and they are choosing impact investments and sustainable houses. There is growing consumer and global nations pressure on energy-efficient building materials, renewable sources of energy, and circular economy. Here, blockchain and smart devices (IoT) can be used to tokenize energy and energy grids, locally and globally. Blockchain is also used to track the sources, quality, and sustainability of building materials and improve auditing to prevent such tragedies like the Grenfell towers. The registered materials can also help recycle buildings once they are demolished. More and more businesses also turn their eyes to green buildings for a variety of reasons, like energy savings, lower environmental impact, and fantastic PR. The green and zen interiors also help employees recharge their batteries and work more efficiently. Smart homes and citiesReal estate is all about ‘location, location, location,’ and the growing smart city trend is likely to have a high impact on real estate value. The smart cities now incorporate intelligent devices to monitor traffic, optimize waste disposal, and help detect crime. In other words, they improve our living experience and make neighborhoods safer. Statista predicts that the smart city market will be worth $44 billion in North America alone, in 2020. Smart devices are also gaining traction. According to Statista, we currently have 7.2% intelligent homes, and 16,7% of all real estate with have some sort of smart device by 2023. The IoT (Internet of Things) gadgets increase the value of luxury and residential properties and decrease the time houses stay on the market. Smart home devices can also optimize energy consumption and help sell excess solar energy to the grid, for example, in Australia, where feed-in tariffs are a national energy program.
Source: Smart homes revenue (USD) in smart device sales, arranged by type of the device. Statista. https://www.statista.com/outlook/279/100/smart-home/worldwide Property passports on a blockchainThe land registry is a source of sleepless nights for homeowners and home buyers. The governmental legacy systems can be outdated, ridden with human errors, and difficult to set straight. As investors start to enjoy global access to local investments, there is a growing need for a unified land registry and ownership ledger, perhaps using the blockchain technology once again. Deloitte is currently experimenting with blockchain-based property passports that would include the building ownership data, major information about the inspections, and even the building materials. Such a digital building ID would improve transparency and help future investors make informed decisions. SummaryThe use of blockchain in the real estate promises big changes in the property investment markets through real estate tokenization and crowdfunding, improved energy efficiency and traceability of building materials, coordination of the IoT for smart homes and cities, and the global unification of the outdated land registries.
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