The Finance Association – EPFL

Tokenization of the Real Estate Market

This week’s article focuses on the Real Estate Market and innovation idea of combining it with Blockchain technology. Real Estate Market is considered to be one of many sources of investments, but it is still believed to be an inefficient and non-liquid market. In this article, we attempted to describe the main drawbacks of the Real Estate Market as a source for investments and show how modern technologies as Blockchain could dramatically affect the situation and investment decisions. 

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Drawbacks of Real Estate Market

To begin with, we have started to analyse why exactly some investors have doubts about investing in the Real Estate Market.

 Firstly, let us draw your attention that the average price in Europe of residential property in EU-28 as of September 2019 is in the range from 1,633€ (Bulgaria) to 21,179€ (United Kingdom) per square meter. So, for example, if one wants to buy a 45 m2 apartment in Italy (where the average price is 6,589 €/m2)he should have 296,505 €. Giving these numbers, we can clearly state that this market is closed to the average investor.  Consequently, the average investor would rather invest in the equity market.

Another concern of investors would be the lack of data. Compared to the equity market where we can talk about high-frequency data, where there are many agencies/experts who provide their statics and opinion on any particular investments you consider, of course, the real estate market would seem insufficient and not-transparent. If we talk about the real estate market, there is no such word as an exchange and no global database with all available options to invest. 

As a matter of fact, investors are also concerned with timing. All of us have a smartphone in the hands can buy shares within seconds. Meanwhile, the real estate market is lacking transparency in this matter. Generally speaking, all involved actors (investor, owner, tenant and etc) need to perform several actions which are linked to each other and couldn’t be done automatically or at the same time.

 Here comes another issue, usually the actors encounter each other only once and therefore there must be no trust between them. Having this in mind we should also mention the great number of scums in the real estate market which again puts in not in favour of investors.

 

Tokenization of Real Estate Market

Advantages of Tokenization

 As you can see, the tokenization of the Real Estate Market has a lot to offer. And though this method has a number of drawbacks, there is a chance that in the nearest future it will revolutionize the Real Estate Market and transform it beyond recognition

Stay tuned for other articles from The Finance Association of EPFL! Don’t hesitate to send us any suggestions at tfa@epfl.ch or on our Facebook and Instagram pages.

Anna Valiullina

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[1] Regulation D (Reg D) is a Securities and Exchange Commission (SEC) regulation governing private placement exemptions. Usually used by smaller companies, the regulation allows capital to be raised through the sale of equity or debt securities without the need to register those securities with the SEC. //Source: https://www.investopedia.com/terms/r/regulationd.asp