Real estate is the second to fintech most popular area to apply tokenization. Not only stand alone projects pop up virtually everywhere, the new industry is in formation. FIBREE, the Foundation for International Blockchain and Real Estate Expertise, is the leading European network to exchange knowledge between the real estate industry, the IT sector and blockchain technology. Our Editor-in-Chief talks with Achim Jedelsky, the FIBREE President. In 2016, Mr Jedelsky initiated the Daimler AG Blockchain Group and started the Meetup group ‘Blockchain for Real Estate’ in Berlin. He is also the founding member of the German Blockchain Association.
A1: Real estate assets are holding a huge value that is traditionally an investment that is limited to a rather small group of people who are mostly wealthy. The investment process is also complex and regionally very different. These circumstance are adding barriers to enter this kind of investment. Tokenization of real estate is promising to at least reduce these obstacles. Given the regulatory requirements are met, tokenized real estate can be bought and traded globally by everyone.
Q2: What are the main advantages of tokenization in real estate, in comparison to traditional way of sale?
The entry barrier in participating in real estate profits is reduced and it is easier to create a diversified portfolio even if you only invest small amount – because you can participate in fractions of real estate. You are also not necessarily bound to your local market but can invest in global growth areas.
Q3: Please describe the current tokenization landscape in real estate, through the eyes of your Foundation.
A3: Tokenization is for sure the area within the blockchain/real estate industry that draws the most interest and where the most companies are looking for solutions.
Nonetheless the market is still very young and needs to further develop before we can talk about a mainstream solution.
The reason for that is for one part the missing or still developing regulatory framework what is needed to create confidence in the market.
But instead of waiting for regulation to kick in, many companies are using the existing legal framework and creating solutions that are complying with them.
So we see that both sides – technology and regulation – are making steps towards each other, what is in our opinion a very good atmosphere to create innovative solutions.
Q4: How do you see the main purpose of FIBREE? What do you attempt to achieve, in regulation, in marketing, and to solve interoperability issues? Who are the members? How is the Foundation funded?
A4: FIBREEs goal is to bring players form the IT industry, the real estate industry and the blockchain scene together in order to explore ways to fully utilize the advantages of distributed ledger technologies.
With the FIBREE meetup network we created a global platform where people can exchange and learn about blockchain. Through working groups to specific topics FIBREE is analyzing problems and needs of the industry.
The results of these working groups is exchanged with national and international blockchain organisations and/or government representatives to help shaping an environment that fosters innovation.
FIBREE participants have mostly a background in real estate – from all around the real-estate-lifecycle. But there are also IT experts who are interested in getting involved in real estate.
FIBREE is a NGO and currently funded through sponsorship.
Q5: Let’s take myself as an example, I own several properties in Europe and in Asia. To tokenize them, where shall I start? What to look for? How to proceed?
A5: First you need to look into the business case of your tokenization project and only then you start using the technology to actually do the tokenization. It makes sense to get the support of experts to first set up the business plan, design the token and create a go-to-market strategy.
Once you have this, you have all information to make the final decision if you want to go ahead with the project – not in very case the tokenization might be the best way forward. Then you would need a technology partner who creates the token and ideally a platform that helps you selling them.
Q6: So far many tokenizations of real estate end up with only a handful of investors purchasing all tokens. Why is that so, in your opinion?
A6: Probably the main reason for this is that there is not yet a proper secondary market for real estate tokens. Once this is established, more investors will enter the market and also purchase smaller amounts of tokens.
Q7: What are the actual trends in tokenization in Europe and globally?
A7: The FIBREE industry report shows clearly that this is very much depending on national legislation and regional demands. Therefore is there no overall trend in Europe, but rather in specific countries. And this is also changing very quickly as new regulations are issued and either support or hinder the development of real estate tokenization.
Q8: How do you see the future of tokenization in real estate, near-, mid-, long term?
A8: Currently we are still in the phase of exploring what you can do with tokenization and how you can do it in the best way. But more and more the focus is shifting to the business cases (away from the technology) and I think this is a good thing.
We will see in the next 1-2 years more and more tokenization projects coming up, but in comparison to traditional real estate investment this will still be a very small proportion.
Through this period confidence will be created and after that we will see a constantly growing number of tokenized asset until it will become a large, maybe dominant part of the total investment amount.