How Real Estate is becoming a digital asset

digital asset

Yesterday, I had a call with one of my company’s larger customers. It has been five months since my company signed an agreement with this brokerage to process all of its $500 million in real estate sales using my company’s software. For an extended period of time, my team was heading nowhere with this client, who kept pushing the training period dates. However, to my team’s surprise, we received a follow-up call with a request to urgently execute the training and schedule the first property transaction for the upcoming week. The firm’s customers are primarily foreigners from countries in Asia, such as Japan, South Korea, and China; these foreign real estate investors are the very people who are afraid to travel these days due to the coronavirus pandemic but are still willing to close their property purchases in the United States.

In the future, an increasing number of real estate transactions will be taking place remotely online. Besides coronavirus and other publicly disturbing events that lead to mass hysteria, there are behavioral and technological evolutions that have been turning real estate from a purely physical asset to a digitally behaving one, which I will explain below. In addition, I have been reflecting on trends that may happen over the next decade. Below, I outline five trends that will shape a major transformation of the real estate industry in the years to come.

The world of digital assets is expanding, and we are starting to see each piece of daily life and business activity being converted into a computer-readable format. Money is already digital; in fact, only 8% of the world’s currency is materialized in the form of physical cash. The stock market is digital, as well (Charles Schwab was the first major financial services firm to sell stocks online, which ultimately led to an online real-time market for digital assets). As for tangible physical goods of generally low value, such as books and clothes, the majority of these items are traded online and around the clock, thanks to e-commerce platforms such as Amazon, eBay, and Alibaba. In contrast to low-value goods and services, there is a class of high-value assets that are behaving more and more digitally due to their digital ownership representations; this category includes real estate, cars, expensive collectibles, boats, and even venture investments.

When it comes to homes or cars, a digital record determines the ability of an individual to resell the asset in the future. It does not matter who actually uses the possession (i.e., lives in the house or drives the car); the legal owner of the high-value asset is the one who is recorded in a piece of code. Today, in the specific context of ownership, authorities store records in digital format (rarely on paper). In the United States, counties keep digital documents (scanned deeds) in databases that are managed by recorders’ offices. The previously government-controlled process of establishing car ownership is now controlled by private companies that take care of the records. Thanks to an increased trust in deals, not only has the process of online ownership transfer become possible, but the dependence on governments to store this data has decreased, unlocking further innovations.

The real estate asset is behaving like a digital asset because the ownership of the asset is already digitized; furthermore, the paperwork for the ownership transfer is also mostly digitized (thanks to the innovations of companies and organizations such as DocuSign and the National Association of REALTORS). In addition to these significant changes related to real estate and how it is traded, there will be further transformations and developments in the coming decade. Below, I outline five of the trends that I foresee for the real estate industry.

Trend 1: Real Estate Sales To Take Place Entirely Online In A Seamless Way

Imagine a future in which the real estate market is accessible and tradable in real time, similar to how one can access the stock market through a Bloomberg terminal. In this future, property ownership gets transferred instantly after the paperwork and payment are executed, and the process takes place entirely online. As predicted by proptech venture capitalist Vik Chawla from Fifth Wall:

“Future real estate transactions will take place in an entirely digital format where commercial and residential real estate purchases and sales are completed seamlessly. Through the utilization of these digitized platforms, major stakeholders will see an increased speed and lower cost of transaction, coupled with a rise in available data.”

Online sales are becoming possible because of easy data access and digital tools that are designed to make the property transfer process more convenient and transparent. The transparency of transactions, coupled along with privacy protection, is especially important when it comes to creating a healthy environment for buyers, sellers, and realtors. As stated in a World Economic Forum article, the growth of a particular real estate market is undeniably correlated with the level of transparency in that market. For this reason, many nations are expected to adopt proptech, which has already sparked a technological movement.

Oxford professor Andrew Baum defined “proptech” as a marriage of fintech and real estate. Fintech has to do with technological innovations in the context of money and payments (such as Apple Pay, Facebook’s cryptocurrency, and iWallet), as well as mortgage tech (such as Divvy, Better.com, and BoardRE) and secure wire payment gateways that are specific to real estate. Such financial innovations in real estate are leading to faster, more secure, and cheaper asset transfers that take place entirely online and that are expected to be seen more frequently in the coming decade.

The notarization procedure, a key part of the transaction process, is also starting to accelerate its presence online, thanks to companies such as Notarize.com and an evolution of the legal environment. Recently, agents and other market participants have become especially proactive at using technologies such as e-notarization and other tools for remote work during the unfortunate and deadly coronavirus crisis.

Software that is based on emerging tech (such as blockchain) allows participants to not only make paperwork and asset ownership secure but also complete work remotely. New tech comes with additional benefits, including the simple avoidance of establishing physical contact during periods of crisis. Such crises include the public spread of diseases (such as outbreaks and pandemics), dangerous weather conditions (such as snowstorms and hurricanes), and unstable political activities and rallies (such as protests and riots). The teleconferencing startup Zoom Video Communications reported that its stock has gone up by 38% in the past month, as the coronavirus panic is causing more people to switch to a remote work mode.

Agents who are always on the go are quickly learning how to deal with crises. The use of Zoom and other online real estate-related services is becoming especially relevant for people who need to take appropriate measures to meet their clients’ expectations and needs while staying safe and risk-free.

No matter the industry, when public stress builds up to a critical level, mob psychology and behavior change significantly. In the case of real estate, homebuyers and agents are forced to close deals remotely and entirely online to avoid physical contact in dangerous situations. Additionally, buying and selling on the go is becoming an expectation of current generations, including millennials and Generation Z, which will soon represent 50% of all homeowners in the United States.

Trend 2: More Capital to Be Invested In Proptech And Adoption By VCs And Startups

Corporations in real estate are heavily investing in VCs and proptech VCs; one such example is Fifth Wall, which has raised $503 million to invest in the proptech field. Enterprises have a clear understanding that they need to adopt new technologies. By adopting a startup’s technology, corporate investors also ensure the success of that startup; the support is mutually beneficial for the investors, their LPs, and the startup.

In 2019, the proptech market grew significantly; capital invested in proptech companies increased by 157% from the previous year, totaling an all-time high of $24.9 billion. The figure is predicted to be even higher this year. Companies and organizations like Lennar Corporation, Oxford Properties, JLL, CBRE, and NAR (the National Association of REALTORS) are investing in funds, accelerators (REach), and startups in the proptech field. Great examples of larger funds that are backed by real estate operators include Fifth Wall, OMERS Ventures, Second Century Ventures, JLL Spark, Camber Creek, and Round Hill Ventures.

Trend 3: iBuyer And Non-iBuyer Markets

Across 18 markets in the United States, the iBuyer market share out of total homes sold grew from 1.6% in 2018 to 3.1% in 2019; extended across the U.S., 3.1% out of roughly 673,000 houses equates to over 20,000 residential properties. While the iBuyer model is designed to target impatient or desperate sellers who are willing to accept higher fees (which can be in the range of 13% to 15% of the property value) in favor of saving themselves time and stress, the iBuyer concept is appearing to work and is growing in popularity. To some homeowners, the “three-day experience” and the 5% to 7% commission rates seem reasonable.

The iBuyer business model is becoming more accessible through a vast number of large brokerages and traditional real estate agents. Real estate professionals may have iBuyer programs of their own, as the capital required to operate this type of property buying and selling model is relatively easy to access. However, in some markets such as Silicon Valley, the traditional iBuyer model might not be as popular as it is in other parts of the United States. This conclusion comes from the fact that the San Francisco Bay Area and other parts of the U.S. are not homogeneous, and the high price tags make the model risky for iBuyers and their lenders.

Trend 4: New Era For Brokerages And Agents. Will They Be Disrupted?

In the new era, real estate professionals will no longer be middlemen (in the traditional sense). Brokerages will be extensively training their agents to use advanced technologies to work with customers. Over the past five years, brokerages invented new ways to generate leads and, as a result, no longer rely only on services such as Zillow (which turned into an iBuyer company in 2019). Instead, real estate professionals are pushing the industry to evolve even more. With novelties in the field, the brokerage industry will witness the replacement of top brands. Agents will be switching to new “cool” pioneers in the real estate space, quickly bypassing old “established” brands that have outdated technologies. Compass could be an example of a rising star, although it has the prerequisites to evolve into the next old and “established” brand to be outcompeted by newcomers.

Brokerages will be providing many additional services (such as iBuyer services, renovation loan services, lead generation services, marketing tools, and faster online closing tools). The business structures of many brokerages may change as well; changes may involve the inclusion of title and escrow services into the traditional business model. By focusing on their technology and service levels, brokerages will have higher chances of becoming the main drivers of new technology adoption; by doing so, the firms will offer higher value to real estate agents.

With the benefits of emerging technologies come potential risks for agents, as their commission rates may drop significantly due to the after-effects of new tech disruptions and growing competition. Despite these potential risks, the introduction of automation tools should improve the current dealmaking flow in the space and open up new opportunities for service providers to achieve higher numbers in their closing transactions. Those who know how to use new technologies effectively will be winning over customers. Phrases such as “my friend advised me to work with this agent” will be irrelevant. Instead, agents who are willing to negotiate on pricing levels will be receiving more exposure and demand. Trusted agents will be those who have the technical skills to close deals quickly and efficiently as well as those who have undeniable proof of high qualifications (such as high online ratings that reflect the agents’ abilities to negotiate on pricing).

In the U.S., where real estate professionals have liability and significant impact over real estate transactions due to the NAR, agents will not be disrupted anytime soon; all startups that aimed to disrupt brokers turned into brokerages themselves, or they started to partner with brokerages (such as Redfin and Opendoor). However, in many countries with no MLSs (where agents are not licensed and not trusted), real estate professionals could be disrupted and replaced with digital tools once the transaction process is fully automated and secure and once the consumer has direct access to listings.

Trend 5: Tokenization And Global Liquidity

Tokenization has become a popular and trendy word in the real estate and crypto spaces. In the context of tokenization, ownership is represented by a digital (or cryptographically-enabled) token that can easily be transferred between two digital wallets. There are two types of tokenization in real estate: Entire Asset Tokenization and Fractional Ownership Tokenization. The first, EA Tokenization, is very hard to implement; the second, FO Tokenization, is already having use cases. Both types are aiming to achieve unprecedented liquidity and accessibility in the real estate market on a global level. This trend will probably start showing its first mass-scale signs no earlier than at the end of the decade.

EA Tokenization is a P2P (peer-to-peer) entire asset transfer, where the title deed itself is tokenized. Entire Asset Tokenization is still hard to implement (not as much from the technical as from the regulatory and consumer risk management perspectives). To get there, first, the entire closing flow will have to be automated (this is already happening). The bottleneck will be the adoption of digital identity, its verification process, and the use of security token wallets.

Despite the obstacles, the future is bright. The ownership of assets could easily be transferred after the digital identity is verified and after the funds are simultaneously and instantly transferred. Additionally, agents and all other parties would be able to receive their payments automatically and immediately in their digital wallets. The elimination of most of the manual labor suggests that fees will most likely drop from a current charge of 10% of the property price (including recording fees, escrow fees, split fees, auditing fees, etc.).

The problem with current tokenization projects is that they do not work on the underlying protocol that would enable a new asset class, the tokenized deed, to emerge. Furthermore, no VCs would back such EA Tokenization innovation due to the very slow adoption of this technology and government involvement in the current real estate transaction process. The digitalization of the title deed and the liquidity associated with this new digital asset will lead to tremendous changes in the way that the real estate industry is financed and operated. One positive example is a San Francisco-based company, Figure, which has successfully tokenized home equity line of credit (HELOC); the firm does not work on EA or FO Tokenization, but it has received great traction in tokenizing a specific category of real estate.

Since 2017, many platforms and startups have announced that they were working in the space of Fractional Ownership Tokenization of assets. Some have failed, while others have received their first large-use cases and customers. However, while the aforementioned startups claimed to be focusing on fractional ownership of real estate, their business models were, in fact, representations of traditional crowdfunding, in which a legal entity owns a real estate asset that is being tokenized (similar to a classic ICO). The only difference is that the type of token is a security and thus should be registered with the SEC (similar to registrations of public and private Real Estate Investment Trusts). Many institutional homebuilders and asset holders have relied on this type of fundraising as a novel opportunity, seeking premium prices or faster sales. However, those who look for this type of fundraising should think of it as a way to participate in innovation and as an opportunity to shape the future of real estate trading.

Source: Forbes

You May also Like this

The New Certificate of ...

The Lagos State Government has said that in next two years 100,000...

Hybrid Work Environment and ...

As I type this, I’m awaiting my next Zoom meeting in what’s...

How to begin Investing ...

can be as simple as saving in a bank or as intensive...

Tips on Real Estate ...

The pandemic may have brought drastic changes to our daily lifestyle, however...

Things to avoid in ...

As an owner of a franchise, one of the biggest decisions you...

Pros & Cons of ...

 could be a very smart financial decision with proper planning and budgeting....

invest in real estate
Strategies to Invest in ...

There are an endless variety of ways to , from taking out...

Real Estate Technology Solutions
Recommended Real Estate Technological ...

Online real estate catalogues include virtual tours of sample flats to give...

Diversification
Diversification Vs Specialization of ...

There are two main schools of thought when it comes to :...

Real Estate Trend
The most common Real ...

is one of the most dynamic industries that have seen some major transitions in...

rental property
Can you buy rental ...

You’ve heard that buying a rental property can be a fantastic way...

Commercial Real Estate
The impact of COVID-19 ...

For a long time now,  real estate has been seen as a cash flow-generating...

Real Estate Market
Business Opportunities in the ...

With the economy fluctuating, more investors turn to the real estate market...

real estate professionals
Things Real Estate Professionals ...

During this , social unrest and an upcoming election, a lot has...

Virtual Real Estate
Blockchain Technology to monetize ...

In the “real” world, has historically been seen as a viable investment....

brrrr
What is the BRRRR ...

If you're part of the business or plan on breaking into it,...

Macroeconomic
Macroeconomic Issues in Real ...

Understanding macroeconomic risk is critical to a successful strategy. While this form...

Technology
How Technology is transforming ...

Technology is constantly transforming the way we live, and the commercial real...

illiquidity premium
What is Illiquidity Premium ...

Illiquidity premium is the excess return an investor stands to earn in...

renewal
The procedure for the renewal ...

According to Section 1 of the , the law vests the ownership of...

pandemic
Post COVID-19 pandemic and ...

Adapt. Innovate. Accelerate. This is the mantra for any business right now...

Real Estate Wholesaling
Real Estate Wholesaling Pros ...

wholesaling is a kind of arbitrage in which a party known as a wholesaler...

stamp duty
The new Stamp Duty ...

Taxes are one of the ways through which the Government generates revenue...

WFH
How Work From Home ...

Google has announced that it will continue with work from home (WFH)...

Investment Portfolio
Investment Portfolio Diversification in ...

Months after the onset of Covid-19, we continue to see its impact...

path of progress
What is path of ...

As a , you may have heard the term path of progress before. The...

Virtual Real Estate
Increase of Virtual Real ...

Prospective buyers getting their first glimpse of potential homes through smartphone cameras...

Property Managers
Operational Guidelines Property Managers ...

The pandemic crisis has thrown nearly all industries for a loop, and...

Commercial real estate
The Effect of the ...

The real estate industry is changing, a change that started before the...

Disruptive Real Estate
Disruptive Real Estate and ...

What do Google, Microsoft, Facebook, Twitter, Visa and American Express all have...

Post-Pandemic
Outlook of Post-Pandemic Commercial ...

The COVID-19 pandemic is having a transformative impact on (CRE) markets. The...

invest in real estate
Reasons you should Invest ...

Your current financial stability doesn’t guarantee that you’ll be free from financial...

Retirement
Real Estate Investments for ...

Real estate can be an incredible tool to help you prepare and...

Real Estate Industry
Tips to better understand ...

If you're looking to buy or sell property, it's important to have...

Real Estate Investment
Ways of getting involved ...

While many people get involved in real estate to generate a return...

value
How to assess the ...

If you’re investing in property, you’ll need accurate real estate valuations to...

Real Estate Investors
Guiding Principles for Real ...

While the national faces significant uncertainty right now, it's important to recognize...

Real Estate Investing
The largest benefits of ...

Real estate is one of the best possible ways to drive personal...

The Real Estate Market
How the Real Estate ...

If you're looking to buy or sell property, it's important to have...

Remote Working
Remote Working and its ...

Many ask if the remote working culture will be here to stay,...

buying and selling
Real Estate Buying and ...

EASTON — agents and their colleagues have adapted quickly to the new...

unstable market
Investing in Real Estate ...

The industry is filled with its share of ups and downs. In...

real estate investments
Real Estate Investments to ...

There are several types of real estate , but most fall into...

office space
Will the Pandemic make ...

A myriad of publications have already pronounced office space a trend of...

How the pandemic will affect Resident Demands in the future
How the pandemic will ...

The current pandemic and global response is a once-in-a-lifetime event that has...

real estate stock market
The effect of Real ...

Financial market commentators tend to focus on the price of bonds and...

Real Estate Agents
Ways Real Estate Agents ...

There is a reason companies like Tesla have such a loyal customer...

Commercial real estate investments
Commercial real estate investments ...

real estate investments will fare well in the face of the coronavirus, which...

Operational Real Estate
The importance of Operational ...

New York, NY—With the shift towards buying an experience over buying a...

Passive Income
Ways to Earn Passive ...

Passive income is an important factor in building wealth and achieving financial...

millennials
The Future of Real ...

We've all seen studies on millennials circulating around the internet. As the...

land
Things to consider before ...

Looking to buy land to build your dream home? Land is the...

Angel Investing
Angel Investing versus Real ...

I’m often asked what my preference is when comparing angel investing to...

Bitcoin Investment
The comparison of Real ...

Two popular avenues, real estate and bitcoin, have been making waves in...

mortgage
How to find the ...

If you’re looking to buy a home or in a single family...

Reserves
The importance of Reserves ...

Private real estate affords investors considerable control over their , from how...

attorney
The importance of an ...

Engaging the right attorney helps you avoid costly mistakes in deals. Especially...

bundle of rights
The comparison of bundle ...

What is “,” really? Most people might say it's the land and/or...

Lagos State Real Estate Law
Laws guiding the Use ...

The regulatory bodies in real estate include but are not restricted to the following;...

Commercial Real Estate Tech
2020 Top Commercial Real ...

Deloitte’s 2020 Commercial Real Estate Outlook surveyed 750 owners, operators and investors in 10...

Mortgage notes
Guide on investing in ...

Most new investors in active real estate start with a traditional method...

real estate rehab
Stages of Real Estate ...

If you play your cards right, rehabbing houses can be very rewarding...

Multifamily
Investing in Multifamily Real ...

Millions of Americans depend on cash flow generated by long-term investment portfolios,...

ways to invest in real estate
Ways to invest in ...

There is a common misconception that real estate investing requires property ownership....

rental properties
Pros and Cons of ...

Many investors understand why they should invest in real estate for the...

urban regeneration
Planners urge Lagos State ...

Planners have charged the Lagos state government to do more detailed master...

Commercial Real Estate Technologies
Trending Commercial Real Estate ...

The commercial real estate industry has entered a new phase of technology...

Real Estate Location as a franchisee
Tips to secure the ...

Real estate site selection has the power to make or break any...

Remote Workers
How Remote Workers affect ...

As more people are able to work from home, housing priorities have...

5G Technology
5G Technology REITs

There is a revolution going on. You’ve probably heard the term 5G...

buyers
Questions Home Buyers should ...

Buying a home is one of the most expensive decisions you'll ever...

remodeling
Mistakes to avoid when ...

Americans are spending less on home renovations than they were at this...

Real Estate Market
Reasons for investing in ...

Are you thinking about purchasing your first piece of real estate? Investing...

real estate funds and REITs
Differences between real estate ...

Are you ready to invest in real estate? Real estate funds and real...

Real Estate Technology
Investment in Real Estate ...

Investment in technology for real estate, also known as “proptech,” has seen...

Agents and Brokers
Differences between Real Estate ...

Real estate transactions often involve significant amounts of money. As a result,...

real estate crowdfunding
Real Estate Crowdfunding Investment

Ask a rich person how they got rich, and there’s a good...

Investing Real Estate Market
Investing in the right ...

Investing in real estate is tremendously exciting, and can be very lucrative....

housing in Nigeria
FMBN to build 100 ...

Ahmed Dangiwa, Managing Director, Federal Mortgage Bank of Nigeria (FMBN), said the...

local real estate market trends
Factors that determine Local ...

Real estate markets trend between times of boom and bust, depending on a...

real estate technology
How Technology is Transforming ...

It’s 2019, and the pace of innovation across industries is accelerating at...

invest in real estate
Affordable ways to invest ...

Real estate can help diversify a portfolio. One way to grow your...

real estate digital finance
8 top concepts of ...

In all history there has never been a more profound era of...

appraisal services
Why you need appraisal ...

Real estate investing can be an excellent way to earn passive income....

Real Estate Investment
Determining your Real Estate ...

Malcolm Gladwell states that it takes 10,000 hours of practice to become...

real estate agent
12 Qualities in Selecting ...

Purchasing a home is a huge financial commitment, so finding the right...

National Urban Development Policy
Revision of the National ...

The long-awaited overhaul of the National Urban Development Policy (NUDP) has been...

Warehouse
Capitalizing on the Warehouse ...

Everyone knows that retail is evolving, and common thought says that retail...

Mixed-Use Real Estate
Benefits of Mixed-Use Real ...

In cities, mixed-use real estate is hidden everywhere. Someone likely lives above...

dead capital
Real Estate Dead Capital ...

PwC estimates that Nigeria holds at least $300 billion or as much...

Blockchain Technology in Real Estate
The effect of Blockchain ...

Since the recession, the commercial real estate industry has experienced exceptional growth....

Post your Comments

NAME *
EMAIL *
Website

%d bloggers like this: