How Blockchain Can Transform The Investment In Real Estate?
Many countries around the world have been looking forward or have initiated the process of implementing functional and legal frameworks to regulate blockchain-recorded tokens over the past few years, which has led to the increasing exploration of these technologies across many investment sectors.
Furthermore, the use of distributed ledger technology (DLT) has proved to be a powerful disruptor at the transactional level, where significant removal of intermediaries is occurring — especially with one of the most popular alternative investments: real estate.
Much of the recent steps towards regulation try to solve the problems like volatility and risk concerns related to both initial coin offerings (collectively, ICOs) and security token offerings (STOs).
For example, recent regulatory movements include:
In July last year, the country of Malta passed into law the world’s first legislative framework for blockchain technology and DLT with the purpose of regulating ICOs and STOs, including a benchmark regulatory platform and process.
In December 2018, the Council of the European Union published the G-20 declaration titled “Building Consensus for Fair and Sustainable Development,” summarizing the discussions at the 13th G-20 meeting in Buenos Aires, Argentina.
After the G-20 declaration, seven EU countries, also known as the “Mediterranean Seven” — signed a declaration agreeing to cooperate on blockchain and DLT technologies. Here again, the small country of Malta took the initiative to launch the declaration, the other countries in the pact included Italy, Spain, France, Portugal, Cyprus and Greece. The agreement binds the seven countries to promote blockchain and DLT technology and work together in the blockchain sphere.
Quite a lot of groups, firms and countries are collaborating to work in the blockchain sphere are seeking to fine-tune and standardize definitions of the different types of tokens, much of this regulation recognizes that STOs — which, unlike most ICOs, are backed by physical assets and they could be the solution to the problems like security and fraud concerns surrounding ICOs and other types of crypto tokens.
Moreover, STO raises likely had a 95% completion rate last year. Ultimately, this success and validation has led to broad acceptance of STOs across several sectors, including real estate.
Fractional real estate
Unlocking the liquidity of smaller investors through democratizing access is expected to be the biggest game-changer, thanks to fractional real estate (FRE) opportunities.
Since this class of investment opportunity was previously only availed to high-net-worth investors, real estate investment trusts (REITs), opportunity funds, investment vehicles managed by major banks, or institutional investors, the tokenization of investment-grade assets into fractional real estate significantly lowers the barrier of entry, priced at single token value with no traditional minimum investment limits or lock-in periods — creating a simpler and more more secure and trustworthy opportunity for investors to buy in to.
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