How blockchain technology is revolutionizing the real estate market

September 2021 – For years, great hopes have rested on the tokenization of real estate In a joint study, Hamburg Commercial Bank and the Frankfurt School Blockchain Center have now taken a closer look at the subject. The conclusion: Many basic prerequisites are still missing But the opportunities for a boom are there.

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The tokenization of real estate has been a hot topic in the real estate market for a while now, and there has been a lot of talk about it, either openly or behind closed doors. Two and a half years ago, Berlin-based financial services provider Brickblock tokenized and sold the first property in Europe - a residential property in Wiesbaden, the state capital of Hesse for two million.

But what are these growth fantasies actually founded on? A team of three experts - consisting of Hamburg Commercial Bank's chief economist Dr. Cyrus de la Rubia, researcher Professor Dr. Philipp Sandner and PhD student Jonas Gross from the Frankfurt School Blockchain Center - wanted to find out more. In its “Study on the Tokenization of Real Estate. How blockchain technology is revolutionizing the real estate market”, the trio examined the future uses and growth potential of blockchains in the real estate sector.

Foto Dr. Cyrus de la Rubia

Dr. Cyrus de la Rubia

The tokenization of real estate has been a hot topic in the real estate market for a while now, and there has been a lot of talk about it, either openly or behind closed doors. Two and a half years ago, Berlin-based financial services provider Brickblock tokenized and sold the first property in Europe - a residential property in Wiesbaden, the state capital of Hesse for two million.

But what are these growth fantasies actually founded on? A team of three experts - consisting of Hamburg Commercial Bank's chief economist Dr. Cyrus de la Rubia, researcher Professor Dr. Philipp Sandner and PhD student Jonas Gross from the Frankfurt School Blockchain Center - wanted to find out more. In its “Study on the Tokenization of Real Estate. How blockchain technology is revolutionizing the real estate market”, the trio examined the future uses and growth potential of blockchains in the real estate sector.

Prof. Dr. Philipp Sandner

Prof. Dr. Philipp Sandner

Tokenization significantly reduces costs

In the eyes of many, tokenization promises to revolutionize what is a rigid and conservative market. The introduction to the study sums up the advantages of blockchain as follows: “These promises include the ability to make real estate investments more fractionated in future at a significantly lower cost, making them accessible to more investors. By automating transaction and asset management, process structures that are currently still fairly inefficient can be fundamentally improved in the near future." At least, that’s the theory.

And in practice? De la Rubia, Sandner and Gross took a close look at existing tokenizations in the real estate sector. To do so, they looked at the business practices of around 41 companies from around the world that are already applying the tokenization of real estate. The fact that only 41 companies were examined illustrates that the tokenized real estate business is still in its infancy. And the number of companies already active in the market is generally in the single digit range. Incidentally, when they do use blockchain technology, they do so via Ethereum in almost two-thirds of all cases.

Jonas Groß

Jonas Groß

Many regulatory issues still need to be resolved

The industry study goes on to say "Many basic requirements for exploiting the full potential of the tokenization of real estate have not yet been met.” “These include, for example, liquid secondary markets and digitized land records.” But long-established market participants should therefore not be lulled into a false sense of security. For standard transactions, blockchain could become a real competitor to the far more costly notary in the near future. And providers of traditional real estate funds will also face new competition with tokenization.

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Source: Zielke research consult

From the investor's point of view, one major advantage of tokenized real estate is that it is much easier and cheaper for private investors to participate in an asset class to which they would not have access with conventional financial instruments - often 100 euros or even less is enough. Even open-end real estate funds require higher sums, not to mention closed-end funds with their much higher entry barriers, often starting at 5,000 or 10,000 euros.

Conclusion of the study: “To describe the potential of this innovative type of real estate investment as large would seem an understatement.”

Germany in second place in tokenization ranking

Tokenization companies by country

Tokenization companies by country

Source: Frankfurt School Blockchain Center and HCOB