Benefits of Tokenizing the European Real Estate Investment Segment

According to an Urban Lands Institute report published in November, European property leaders have confidence in real estate as an in-demand and attractive asset class. This article looks into its dynamics in the European market and outlines a technology solution that decentralizes the power to invest and other key use cases.

In an investment condition that is affected by artificially low-interest rates due to the European Central Bank’s (ECB) monetary policy, the risk of having to buy stocks, investing in potentially low-yield bonds and delicate geopolitical events, European real estate is thought to be a safe haven for one to diversify investments.

Even in the wake of a possible rise in construction costs, uncertainty, and the Brexit effect, retail and institutional investors, have more faith and are bound to put their money in real estate projects into the new year.

Real estate projects in Europe, and generally in all regions, demand a high capital outlay. Sources of these funds can range from commercial bonds, debentures, equity shares, and property presales. These types of funding can only be accessed by an investment firm that has networks with high net worth individuals or corporates. Could these firms be missing out on increasing their pool of investors?

Tokenization

Real estate investment firms can increase their funding through tokenization. Real estate properties that have been converted into divisible security tokens enable the holders to enjoy dividend cash flows and capital gains. The issuers, who have employed a blockchain revolution network, raise funding through security token offerings or initial exchange offerings.

Tokenization widens up the capital market of an investment company. The aforementioned public offerings attract investors from all corners of the globe because of the ease of buying and owning tokens over the internet.

An Estonian investment group of companies is set to launch its Initial Exchange Offering this January 2020. Wolfs Group OU is an investment and advisory firm. It is made up of Wolfs Development-real estate, Ferpay Ltd, a newly acquired Fintech company and Wolfs FPE-cutting edge technology. Wolfs Group wants to put a strong foot into the Fintech segment by using the proceeds of the first round of the IEO to grow Ferpay Ltd. It has also acquired an automation company that runs Bitcoin ATMs; these crypto-vending machines are scheduled for installation early into 2020. Wolfs Group has made a strategic partnership with VISA to issue multi-currency cards and payment gateways of USD/EUR/BTC/ETH. It also wants to solidify its success in the luxury property market and expand into other markets ensuring its investors get 40% return on investment. The IEO is set to raise a max of $10 million in the first and second rounds in January.

Benefits of the Blockchain

Tokenization is the birth child of blockchain technology. A use case that is confirmed to have transformed the industry for the better. Here follows other pains that are solved by this technology.

There are numerous players in the sale, transfer or acquisition of a real estate property. From valuers to lawyers, from registry assistants to realtors. All these players maintain their own records that seal trust in the process. Well, a blockchain platform is a suitable, trustless registry. Any updates made to title documents have to be approved by the users of the network.

Real estate transactions between a buyer and seller entail a lot of processes and interplay between lawyers, notaries, realtors, bankers and others. Sometimes the processes take long and are influenced by human delays like bribery and sabotage. Title transfers and name changes take such a long time causing cost hikes beyond budget levels. A smart contract is the solution for the case scenario. Once particular transactions have been completed between two players in the real estate process, documents that are digitally recorded in the blockchain platform or value in terms of tokens are transferred.

Smart contracts are employed in project management to ensure that all players, like Bittrex, finish their milestones in good timing. Upon the completion of a particular activity, funds can be released to a contractor. This ensures resources are used as per budget and the project is completed as scheduled.

A blockchain platform, as discussed earlier, can be used as a registry for all players that use the same type of documentation. The ‘registry’ is immutable, decentralized and trustless. The blockchain platform utilizes a cryptocurrency to effect micropayments between users and performs large transactions for example between bankers and contractors. Large, cross-border transactions are efficiently done using cryptocurrencies that are faster and cheaper than bank transfers.

The benefits of tokenization to the real estate segment in Europe are one facet of the solutions brought about by blockchain technology. Wider reach, greater levels of financing, decentralization, immutability, smart contracting and low-cost transfers are the gains of this novel innovation.