Leveraging blockchain technology, tokenization enables fractional real estate ownership, a significant development given that housing prices have grown much faster than inflation in recent years.
New Generation Struggle to Buy Houses!
As blockchain technology integrates into the financial world, a new asset class is emerging: tokenized real estate. This innovation allows people to invest in portions of properties, making real estate more accessible, especially when housing costs have outpaced inflation significantly in recent years.
The housing crisis has persisted since the early 21st century, with prices skyrocketing particularly after the COVID-19 pandemic. Many millennials lament their inability to purchase homes, unlike their parents and grandparents.
Why can’t the new generation in America buy homes? Is it because prices aren’t what they used to be? Or because they don’t know how to save?
Let’s look at the numbers…
Housing Affordability: 1985 vs. Today
In 2021, the inflation rate rose to 7.5%, nearly four times the Federal Reserve’s target rate of 2%. This significantly impacted the cost of living and the housing market. The average home price in the United States increased by more than 20% since the onset of the pandemic, making it harder for first-time homebuyers to afford a house.
In 1985, the average single-family home cost $82,800, which was affordable for most 30-year-olds at the time. However, housing costs have risen significantly since then, and those who turned 30 in 2019 needed to spend $313,000 for a typical home. This increase in cost far exceeds inflation, making homeownership increasingly out of reach for many people.
Several factors have contributed to the rise in housing prices, including low interest rates, high demand, and limited supply. Low interest rates have made borrowing to buy a home more affordable, driving up demand. High demand has led to bidding wars, further raising prices. Limited supply has exacerbated the problem, as not enough homes are available for sale to meet the demand.
The rising cost of housing is a major concern for many Americans, as it represents a significant expense that can substantially affect their quality of life.
In addition to the rising cost of housing, inflation has negatively impacted other sectors of the economy. The costs of goods and services have increased, making it harder for people to make ends meet. This has led to reduced consumer spending, which can harm economic growth.
Housing prices have surged dramatically over the past 50 years, growing 150% faster than inflation since 1970. If housing prices had risen at the same rate as inflation since 1970, today’s average home price would be $177,788 instead of $408,100.
This means that homeownership has become increasingly out of reach for many people as housing costs have significantly outpaced wage growth.
Can Technology Address the Crisis?
Modular homes, built off-site in controlled environments, offer an affordable and efficient solution for housing. Their standardized production ensures quality, speeds up construction, reduces labor costs, and makes housing more affordable.
From a financial perspective, tokenization, which involves converting asset ownership into digital tokens on a blockchain, enables fractional ownership. This means people can invest in just a portion of a property, making real estate more accessible. Furthermore, the transparency and reduced need for intermediaries in blockchain processes can lower transaction costs and increase trust.
Modular homes and tokenization have the potential to create more affordable housing solutions. Currently, projects are in the market that leverage tokenization and modular technology to create budget-friendly homes. For example, the HomeKey project delivers a house at the cost of an apartment in three months.
Thus, there is still hope—homes may become accessible again!
Tokenized Real Estate: Statistics and Examples
Digital real estate has become an investment trend in recent years. If you are considering entering this new market, this article is for you.
Highest Liquidity
Tokenized real estate is an emerging trend that uses blockchain technology to divide ownership into digital tokens. These tokens represent a fraction of the asset’s value and allow investors to buy and sell property shares without needing to purchase the entire asset.
Tokenized real estate allows investors to enter the market with less capital, making it more accessible to a broader range of investors. By dividing a property into digital tokens, investors can easily buy and sell shares of a property, increasing liquidity in the market.
Most tokenized assets are sold as tokens or NFTs (Non-Fungible Tokens). For example, on the Home Key platform, an NFT represents one square meter of a property. This provides an easy way to invest in real estate without the involvement of real estate agents, brokers, or other intermediaries.
Tokenized Real Estate Data
Let’s get straight to the numbers. This article presents key statistics about the tokenized real estate market from various sources.
According to Deloitte’s analysis, the tokenization of real estate assets will reach $1 trillion by 2030. The report forecasts that the Asia-Pacific region will lead the tokenized real estate industry, mainly due to the growing blockchain technology in countries like China, Japan, and Singapore.
According to research from SpringerOpen, the total value of tokenized real estate in 2020 was estimated to be $128 million.
From June 2021 to May 2022, real estate tokens experienced the fastest market capitalization growth, reaching $16.4 billion in the emerging tokenization industry.
The current market value of tokenized real estate is over $200 million. The global real estate market is currently estimated to be worth $317 trillion, meaning tokenized real estate holds a 0.5% share. However, there is significant growth potential here.
According to a report from ResearchAndMarkets, the tokenized real estate market worldwide is expected to reach $1.5 billion by 2025.
Examples of Tokenized Real Estate
Here are some examples of apartments and commercial properties that have been successfully tokenized:
St. Regis Aspen Resort:
In 2018, blockchain technology was used to tokenize a luxury hotel and condominium complex in Colorado, USA, allowing investors to purchase fractional ownership in the form of security tokens.
Dallas Apartment Complex:
In Dallas, a 250-unit multi-family apartment building offered tokenized options to investors. For this $47 million project, the development company raised $6.5 million from investors.
Salt Lake City:
A multi-family residential complex in Ogden, Utah, was tokenized with a minimum investment of $1,000 and a targeted internal rate of return (IRR) of 16.8%.
Sapporo City Hotel, Kenedix:
A Japanese real estate company announced the launch of its fifth digital security token backed by a hotel in Sapporo. To date, ¥33 billion ($240 million) has been raised from five buildings. According to Kenedix, the tokenized real estate security industry is expected to reach ¥2.5 trillion ($18 billion) by 2030.
Several Countries for Real Estate Investment
As the financial world embraces blockchain technology, a new asset class is emerging: tokenized real estate. By combining the advantages of investing in real estate with the efficiency and liquidity of blockchain, the tokenized real estate market offers exciting opportunities for investors and entrepreneurs. This article explores five countries that stand out due to their favorable conditions for those interested in digital real estate.
United States
It is no surprise that the United States leads the real estate market. With a strong legal framework, established property rights, and a highly developed financial system, the U.S. provides an ideal environment for tokenizing real estate. Additionally, the country’s large market size and diverse types of properties offer numerous investment options.
Investors and entrepreneurs have access to real estate assets such as residential properties, commercial buildings, and even luxury resorts. With the abundance of real estate crowdfunding platforms and regulatory support, the U.S. market is an attractive destination for those looking to invest in tokenized real estate assets.
Switzerland
Known for its strong investor protection laws and favorable business environment, Switzerland is a thriving hub for real estate markets. The country’s stability, political neutrality, and established financial institutions have made it an attractive destination for global investors. Furthermore, Switzerland has been actively adopting blockchain technology, with the city of Zug earning the name “Crypto Valley” for its supportive ecosystem. Tokenized real estate platforms in Switzerland offer a wide range of investment opportunities, from residential properties to commercial complexes, and the country guarantees a transparent regulatory environment, investor trust, and legal support.
Singapore
Often regarded as a financial powerhouse, Singapore has also embraced the potential of real estate markets. The government of this city-state offers a strong legal framework, robust property rights, and a reputation for transparency. Singapore’s strategic position as a global business hub makes it an attractive destination for real estate investment.
The government’s proactive stance on blockchain and digital assets further enhances the appeal of the tokenized real estate business. Investors and entrepreneurs can discover opportunities in both residential and commercial properties, including iconic skyscrapers and notable urban developments. With a well-regulated financial ecosystem and a supportive business environment, Singapore provides a profitable market for those seeking to invest in tokenized real estate.
United Arab Emirates
The United Arab Emirates has emerged as a central hub for real estate markets, particularly in cities like Dubai and Abu Dhabi. With a rapidly growing economy, favorable tax policies, and a crypto-friendly legal framework, the UAE provides a conducive environment for investors and entrepreneurs. The country’s iconic skyline, luxurious developments, and ambitious infrastructure projects make it an attractive destination for crypto-enabled real estate investments.
Malta
Known as the “Blockchain Island,” Malta has positioned itself as a blockchain-friendly jurisdiction, making it an enticing option for real estate investments. The country has implemented comprehensive regulations and a supportive ecosystem for blockchain and cryptocurrency activities. As a result, Malta has attracted numerous tokenized real estate platforms, offering investment opportunities in residential and commercial properties. A combination of transparent regulations, private property protection measures, and government support makes Malta a desirable destination for those seeking tokenized real estate ventures.
Canada
Canada is one of the most crypto-friendly nations globally. While its real estate market is smaller than the U.S., it offers long-term potential for digital property. What sets Canada apart is its forward-looking regulatory approach. The Ontario Securities Commission’s welcoming stance on digital assets paved the way for growth in the real estate market. The Canadian government has lowered entry barriers, allowing domestic and international investors to benefit from real estate investments with minimal upfront costs.
Germany
Germany is not just renowned for cars and home appliances but is also growing in the field of crypto-enabled real estate. The German financial regulator, BaFin, has been proactive in adapting laws for blockchain technology. Coupled with Europe’s strongest economy and a robust real estate market, Germany offers an excellent investment opportunity. Platforms like Bitbond have successfully issued tokenized real estate bonds, allowing investors to enter the German real estate market with minimal bureaucracy. However, some paperwork remains inevitable due to Germany’s meticulous administrative approach.
El Salvador
El Salvador is primarily known as the first country to adopt Bitcoin as legal tender. The nation’s embrace of blockchain has become an emerging hotspot for crypto-enabled real estate. The government’s positive attitude towards cryptocurrencies simplifies digital asset transactions, including tokenized real estate investments. El Salvador’s growing economy and affordable property prices attract investors to its high-potential markets.
Bermuda and the Cayman Islands
Looking out to the turquoise waters of the Caribbean, Bermuda and the Cayman Islands are no longer just tax havens but emerging players in the real estate sector. These islands have gained popularity for their crypto-friendly regulations.
In Bermuda, the 2018 Digital Asset Business Act spurred the growth of blockchain-based businesses, including tokenized real estate. Similarly, the Cayman Islands are known for their flexible regulatory frameworks encouraging innovation. Tokenized real estate here appeals to investors looking for a slice of island property without the traditional complexities of real estate investment. The potential for high rental returns and low taxes adds to their allure.
Examining Dubai as an Advanced Example
How did Dubai become the capital of real estate?
Dubai is one of the most innovative and progressive cities in the world. It boasts a vast real estate market and is the largest crypto hub in the region. Today, Dubai attracts numerous investors from various countries. While tokenized real estate markets are also developing in cities like New York and Singapore, Dubai is a standout example.
Three main reasons for Dubai’s rise as a real estate capital:
1. Favorable Environment for Blockchain Companies
Dubai aims to become the first fully blockchain-based city by 2030, launching several initiatives related to tokenized real estate.
The Dubai Future Foundation supports and promotes innovation, creating platforms like the Dubai Future Accelerators, which foster collaboration among startups and companies, including those focused on real estate tokenization. The Dubai Blockchain Strategy, launched in 2016, aims to enhance efficiency, security, and transparency in government services through blockchain technology.
Dubai’s Land Department is the first government agency globally to move all its data to a blockchain platform and has introduced the Real Estate Self Transaction (REST) project, enabling online property transactions. These progressive initiatives, combined with low taxes, attract technology companies to Dubai, including those involved in tokenization.
2. Legal Protection
Dubai offers high levels of security, stability, and legal protection for real estate investors. In 2023, Dubai ranked among the top 20 cities in the Global Smart City Performance Index.
The city enjoys stable political and economic conditions, unaffected by regional conflicts or crises. The UAE also has a developed and flexible legal system that regulates the Dubai real estate market.
3. Real Estate Market Development
Real estate contributes approximately 22.5% of the UAE’s GDP, surpassing oil and tourism. Dubai offers a variety of residential, luxury hotels, and premium commercial options at relatively lower prices compared to global cities like New York, London, and Hong Kong.
Dubai’s progress doesn’t end there. The city is constructing a new urban tech district in Al Jaddaf, featuring offices, labs, research centers, and other facilities for advanced technologies. Construction began in 2022 and is expected to be completed by 2030.
Where Can You Buy Real Estate with Crypto?
You may have seen headlines like “An anonymous buyer purchased a $25 million villa in Spain using Bitcoin.” In recent years, some homes and apartments have been sold using cryptocurrencies, hinting at the growing trend of real estate tokenization.
However, not every property can be purchased with crypto.
Have you ever wondered where buyers find these properties?
Buying Real Estate with Cryptocurrency
Crypto Emporium is the most popular platform for buying and selling real estate with cryptocurrencies. Currently, its marketplace lists 336 properties priced between 0.84 and 2,612 Bitcoins. This site functions like a typical real estate search engine, allowing users to filter properties by type, location, price, number of rooms, and more—only here can you use crypto to make your purchase.
Most properties listed are located in the United States, EU countries, Thailand, and Costa Rica.
Benefits of Buying Property with Bitcoin:
- Purchases can be made anonymously.
- Save on currency exchange fees, commissions, bank transfer costs, and intermediaries when buying in another country.
- Depending on the country, purchasing real estate with cryptocurrency can result in tax savings.
Such transactions often attract media attention, which could be beneficial in certain cases. For instance, influencers may receive free publicity, or if the property is bought as an investment, media buzz might increase its value.
Tokenized Real Estate
Despite the advantages mentioned, traditional real estate purchases still involve lengthy and complicated processes. Tokenization offers a simplified alternative for real estate investors.
Here, the property is not sold as a whole but divided into smaller units. For instance, a 300-square-meter house could be split into 300 NFTs or tokens, which can then be bought and sold online using smart contracts.
Benefits of Tokenized Real Estate:
Properties are sold online via smart contracts, eliminating bureaucratic hurdles.
With the same amount of money, investors can acquire shares in multiple properties, diversifying their portfolios.
Digital tokens can be traded faster and more easily than entire properties.
Certain projects offer investment packages with returns of up to 73% annually. Some even include modular homes as part of the investment.
The Future of Real Estate: Tokenization’s Impact
The tokenization process is reshaping the real estate industry. We are witnessing a revolution where tangible assets are transformed into digital tokens, securely hosted on a blockchain, thereby democratizing investment and ownership. With a market value of $200 million and approximately 40% of the digital securities market, tokenized real estate is making significant strides in the financial world.
Nonetheless, the adoption of real estate tokenization continues to grow, promising increased transparency, efficiency, and inclusivity in the market. As technology and regulatory frameworks evolve, the full potential of this innovation is gradually coming to light.
Promising Features of Tokenization
Tokenized real estate has the potential to disrupt traditional practices, offering new opportunities and benefits alongside its own set of challenges. Its capacity to democratize ownership, enhance market liquidity, and improve accessibility outlines a promising future for the real estate market. Simultaneously, leveraging blockchain technology and smart contracts not only enhances transparency but also streamlines transactions, paving the way for cost and time savings.
How to Use Tokenized Real Estate to Legally Pay Less Tax (100% Legal)
Investing in real estate is subject to additional taxes in most countries worldwide. Beyond standard income taxes, investors often have to pay property taxes and, in some cases, luxury taxes. In certain countries, investors who own multiple properties face higher tax rates.
The valuation process can be complex, and tax collection can be time-consuming and costly. However, tokenized real estate enables investors to pay less tax while maximizing their profits.
Tax Benefits of Tokenized Real Estate
Blockchain technology is revolutionizing real estate through tokenization. This allows investors to purchase fractional ownership of properties, increasing market liquidity and accessibility.
With tokenized real estate, asset ownership is recorded on a blockchain, providing a transparent and immutable record of ownership. Tokenization can also reduce tax liabilities, as tokenized assets like crypto or NFTs may be taxed differently than traditional real estate holdings. In many cases, additional property taxes do not apply.
Tax practices vary by country, so it is essential to consult a tax advisor or accountant before adopting this approach. However, in most jurisdictions, this is a completely legal and highly effective way to lower taxes in real estate investment.
Real Estate vs. Taxation: A U.S. Example
Take the United States as an example. In the U.S., property taxes are levied by local governments and are based on the property’s assessed value. The assessment process can be complicated, involving appraisals and comparisons with similar properties.
However, with blockchain technology, property valuation and tax processes can become simpler and more transparent, reducing costs and inefficiencies for investors.
Property Taxes
In 2023, federal property taxes in the United States ranged from 18% to 40%. Additionally, depending on the state, you may encounter extra costs such as insurance, agent fees, self-employment tax, state income tax, luxury tax, local taxes, and more.
Taxes on Digital Real Estate
In the U.S., you may pay up to 37% on short-term capital gains and crypto income, and up to 20% on long-term capital gains. NFTs, considered collectibles, may be taxed at a 28% rate. Tokenized assets (often structured as NFTs) typically incur lower taxes than traditional real estate.
Moreover, investors can purchase fractional ownership of an asset, reducing their tax liability compared to owning the entire property. Tracking profits from crypto investments is also more challenging than tracking rental income, adding another layer of complexity.
How to Invest in Tokenized Real Estate
To start investing in blockchain real estate, you must find a project offering such opportunities. For example, Home Key provides investment packages with annual returns ranging from 18% to 73%. All transactions occur on the blockchain in crypto, eliminating the need to use personal bank accounts for investments while ensuring compliance through smart contracts.
In summary, blockchain technology has the potential to revolutionize property tax processes, making them more efficient, transparent, and cost-effective. Tokenization can enhance the liquidity of real estate assets while reducing tax-related compliance and administrative costs.
How Did the Tokenized Real Estate Market Grow in 2021?
Conclusion
As the world rapidly moves toward a digital future, tokenized real estate markets offer innovative opportunities for investors and entrepreneurs. From stable markets in Canada and Germany to emerging landscapes in El Salvador, Bermuda, and the Cayman Islands, the opportunities are as diverse as they are lucrative.
Tokenized real estate markets open exciting new pathways for investors globally. While the five countries mentioned here appear promising, they are not the only options for real estate investors. As this form of investment continues to gain popularity and countries develop clearer regulations for digital asset markets, demand for tokenized real estate is poised to grow worldwide.
