"I wanted to invest about CHF 300 in a multifamily house in Detroit through a US provider in 2019," says Professor Fabian Schär, Head of the Center for Innovative Finance at the University of Basel. "The technical process related to the token functioned seamlessly." But then came something that made Schär cancel the transaction: "There were around 150 pages of legal documents that I had to read and sign."
This example illustrates why tokenization has not yet made significant inroads in real estate. Usually the legal basis has not yet been defined or the processes related to the entry in the land register and transfer of ownership are not digitalized. Despite this disappointing experience, however, Fabian Schär is convinced that blockchain, as the underlying technology and tokenization have a lot of potential – potential that the real estate industry should certainly take advantage of. Both investors and those offering real estate investments could benefit.
A number of advantages
The tokenization of real estate is most often lauded for enabling transactions to be carried out automatically, i.e., without an intermediary or advisor, and much more quickly. Fabian Schär, however, cites transparency and the high level of security as key advantages. When these tokens, which represent ownership of a property, are traded via a public blockchain, the transaction is completely transparent for all participants.
In Schär's view, interoperability is the second important advantage . The tokens can, for example, be used as collateral in other financial protocols and benefit from the special features of open financial systems. Other advantages – such as the impact on diversification opportunities for investors – may be exciting but could also be achieved using other technologies.