What has to be considered when tokenizing real estate?

There were some projects that tried to tokenize real estate in 2016. They thought that technically it’s not going to be problem. But they couldn’t do it. There are some complicated legal hurdles that have until now basically held startups back from going after real estate tokenization because a major portion of their budget has to be spent, ironically enough, on legal advice. It’s ironic because I remember when smart contracts were first launched, the mantra was, hey, we don’t need lawyers anymore! But actually, it’s the lawyers in this space who are having the time of their lives right now. In the pre-ICO days, projects that wanted to tokenize real estate would spend a third of their budget on legal advice. Most investors were not cool with that. So, these startups had problems getting funding.

It’s different now with ICOs. There is financing available and the tokenization of real estate is once again a very attractive proposition. But when you look at a venture like that, you also have to look at the global markets. Various countries have different laws and in some countries it may be easier than in others.

Do you see this difference between legislation in different countries as something that could slow down the tokenization of real estate compared to the tokenization of other assets?

For sure. Some countries are very open to the idea, while others not so much. Other projects in Germany are trying to achieve real estate tokenization but are facing difficulties. That’s because the German market is a high-value market, but it’s built on an infrastructure that is not yet open to blockchain implementation. Plus, the desire for change is not very high. In other countries you have perhaps a more flexible situation where the economy has to be open to innovation, if only because it’s in worse shape than Germany’s. And some countries have very strict laws for real estate (Germany and Switzerland, for example). In other countries you don’t even have land registries, so the whole process can get messy. You have to approach the tokenization of real estate from various perspectives and you never know when the next hurdle will show up.

It seems like you have thought a lot about real estate…

I have to disclose here that I am currently advising ELEA, a Swiss project based in Zug (aka Crypto Valley). They want to enable tokenization of real estate by creating something they call the property DNA, which is basically a record of identity for each building where different stakeholders can add data that is recorded and is immutable on the blockchain. This record can then be used in the protocol to tokenize the asset. They are still in the planning stage for their ICO, so it’s not yet a working system.

Do you think Brickblock has the best chance at succeeding where many before have failed?

I know that Brickblock already had an ICO and that they are Berlin-based. I don’t know them personally; I know one of their advisors, who is a very good indicator for the quality of their project. On the other hand, I know there’s a difference between announcing that you’re going to tokenize real estate and actually doing it, so I’m very keen to see how they’re going to progress from here.

“With tokenization you are able to turn a huge pool of value much more liquid and you can enable smaller investors to access these new possibilities.” Pictured: Brickblock’s smart contract platform (alpha version).

I think this will be a huge market. It might be too early in the game for me to say they’re going to be the ones on top. I think in blockchain there will be plenty of space for more than one segment leader. It all depends not just on the capabilities of the developers, but also on the nature of the real estate business itself. It is much more long-term oriented, so it could take longer to move ahead. On the other hand, we have seen already some announcement of a New York hotel that is about to get tokenized. In a year’s time you could, for example, be sitting in Berlin and buying a few tokens from a shopping mall in Nigeria, another few tokens from an eco-village in Indonesia, or from a factory in China. So, this is shaping up to be an interesting time.