Real Estate Tokenization has not met high anticipation


The crypto industry has evolved significantly over the past decade, becoming an important part of many sectors. Naturally, the first industry adapting thoroughly to crypto is finance. Crypto payments and transfers gradually became available in practically all niches of this sector. However, crypto was not an immediate success in all industries.

In general, crypto reached the hall of fame only roughly 8 years from its initial introduction. This was when the price of Bitcoin skyrocketed, making international headlines and attracting global attention. Today, more and more countries, state authorities, and companies recognize cryptocurrencies as a legit means of financial transactions.

Nevertheless, cryptocurrencies remain highly restricted in many nations and regions of the world. In some countries, using crypto can even put you into a prison cell for years. Therefore, this financial instrument had failed to reach a more widespread audience globally whilst being well utilized in particular nations.

The use of cryptocurrency in the real estate market

The year 2018 was quite important for the crypto and real estate markets globally. The boom of initial coin offering (ICO) was anticipated to change the sector forever with the new horizons offered through the blockchain technology. Real estate could now be purchased and ‘tokenized’ in cryptocurrencies, offering reliable and swift transactions and operations. However, the growth has been extremely slow despite the first of such purchase happening a few years ago in the Ukrainian capital of Kyiv.

Why could this be a great combination? It is simple. The Cryptos market is an emerging sector trusted by millions of people. It has proved a number of times that when the rest of the financial industry falls, it can sustain growth and avoid geopolitical turbulences. Therefore, it is a reliable asset that is starting to be seen as a safe haven for investors during turbulent times.

On the other hand, real estate is traditionally one of the most reliable and important assets one can hold. In the vast majority of the world, real estate prices keep going up, making it a good investment for anyone. Therefore, a combination of the two markets can result in forging a strong bond between a traditional sector and an emerging financial instrument.

Real estate tokenization throughout 2017-2018

Matthew McAuley, the director of global research at real estate service company JLL stated in the “Investor” article: “It’s been very slow going with blockchain in real estate, despite it being touted as a game-changer for a number of years now”.

The first-ever real estate purchase through crypto happened back in 2017. The founder of TechCrunch, Michael Arrington, purchased a $60,000 apartment in Ukraine’s capital Kyiv. The transaction was performed using ether through the Propy platform.

The uprise of real estate tokenization continued in 2018 as Aspen Coin distributed $18 million worth of tokens in the fractionalized ownership of a five-star holiday resort in the US’s Colorado. The 179 room resort became the world’s first real estate security token offering. Later on, even a bigger offer went on. A luxury apartment development in Manhattan worth $30 million also released sales through security token offering via companies Fluidity and Propeler.

The fall in 2019

The Manhattan project, deemed to be the most highly-anticipated and well-promoted ones was canceled shortly after the announcement. The lack of institutional demand for the offering was named as the primary factor. There are very few to almost no established secondary markets, further hindering any potential development of the market.

According to McAuley, the crypto market is still far from being effective in the real estate market. There is a need for a thorough and comprehensive legislative approach. Due to the lack of widespread use of cryptocurrencies, the real estate market tokenization does not seem to flourish anytime soon. McAuley commented: “I find it difficult to believe blockchain will be as used, or as useful, in real estate as was thought initially.”