In this article, we dive deep into the emerging trend of crypto and real estate. We explore some of the top real estate coins available, their utility, and how they interact with applications. Also, we discuss the different operations and functions blockchain can play in the real estate industry. Finally, we look at some of the pros and cons of real estate coins and further developments needed to onboard new users.
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Exploring Real Estate Coins
Real estate coins refer to cryptographic assets native to projects innovatively blending the industries of property sales and blockchain technology. The utility of real estate coins varies depending on the protocol. Only occasionally do assets represent the ownership rights of a property using a process called tokenization. Essentially, tokenization is a progressive take on legacy fractional real estate ownership, providing an even lower financial hurdle for investment.
Accordingly, tangible real-world assets such as real estate can have a unique, tamper-proof, and publicly transparent digital record thanks to blockchain technology. Typically, this occurs using a non-fungible token (NFT) standard. Each token contains information regarding the terms of conditions of the sale. Beyond this, tokenization allows splitting a single asset into numerous shares. For example, real estate worth $1 million could be split into 1,000 shares at $1,000 each. Further, these shares or coins can be traded on a secondary market. Thus, the tokenizing of property presents an opportunity for a notoriously illiquid asset class to become highly tradable, ameliorating inefficient and costly third-party intermediaries.
Any form of real estate, whether it's an apartment, office building, or luxury hotel, can be tokenized. This revolutionary concept drastically reduces the upfront financial barriers to investing in real estate. Also, as blockchain is borderless, permissionless, and globally transparent, anyone with an internet connection can seamlessly purchase property abroad. Additionally, with immutable, transparent, and near-instant transaction confirmation, tokenizing real estate exponentially streamlines the anti-money laundering (AML) and know your customer (KYC) regulatory procedures.
Although the concept of tokenization and real estate coins are relatively new, it is a face-growing industry. Analysts from fintech company Stobox anticipate most real estate will be tokenized on the blockchain in ten to fifteen years.
Crypto and Real Estate Explained
There are many different ways crypto and real estate can intertwine. Overall, the goal is to increase accessibility to real estate ownership by facilitating fast, low-cost, and secure international property sales. Furthermore, as an emerging industry, several real estate tokenization models are available, each with its benefits and risks. Below, we outline the most common and fundamental tokenization model.
It is critical to understand that most real estate coins do not give direct ownership of a property or asset. This is because owners of the digital asset would be required to hold necessary legal documents for the underlying real estate. If this were the case, the ease and flexibility surrounding crypto and real estate token exchanges wouldn't exist. As such, the owner of underlying real estate is always a legal entity (called a "special purpose vehicle") from which investors can buy tokenized shares. Typically, this means retail investors don't need to report every transaction to local regulators, shifting the legal responsibilities to the managing organization. Alongside the opportunity for a secondary market, this model offers investors an additional layer of security.
Holding real estate coins or shares is often a form of earning a passive income and receiving a yield on token investments. Most organizations operating a crypto and real estate tokenization business are under a legal obligation to distribute profits among respective real estate coin holders. Therefore, should a company fail to comply, the investors are within their rights to appeal through a court of law.
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Top Real Estate Coins by Market Cap
The first time we witnessed a real-world transaction of real estate coins was in Colorado in 2018. A share of the luxurious St Regis Aspen Resort hotel was sold using digital tokens, raising $18 million. However, the adoption rate of crypto and real estate models has been slow, seemingly due to low demand. Ragnar Lifthrasir, the International Blockchain Real Estate Association president, states: "We are at the very early stages of security token offerings. We have most of the infrastructure in place to do this – a couple of legitimate companies that can do the tokenization, a couple of companies that can do regulatory compliance, and a couple of exchanges where you can buy and sell tokens are online, but don't have a lot of traffic".
Nevertheless, Property Markets Group (PMG) is pioneering the crypto and real estate business relationship. Earlier in 2022, the world-leading real estate development firm with a multidecade of mixed-use, hospitality, and luxury property portfolio revealed a partnership with the popular cryptocurrency exchange FTX. As such, PMG now accepts many different cryptocurrencies for pre-sales and for-sale condominiums. Moreover, this applies not only to residents of the United States but to all of PMG's global developments. Ryan Shear, Managing Director of PMG, announced: "We are proud to be the first residential real estate developer to accept crypto deposits in pre-construction condominiums globally".
Such industry developments indicate that crypto and real estate intertwining is a likely probability for the future rather than a fleeting Web3 pipedream. Although further technical developments must be considered for the mass use of real estate coins, some projects are leading the way. Below, we outline the top real estate coins by market capitalization according to CoinGecko and CoinMarketCap. Statistical information regarding project performance is correct at the time of writing.
Propy (PRO)
First on our list of top real estate coins is Propy and its PRO token, founded in 2016 in California. As the number one crypto real estate project, Propy currently holds a market cap hovering just above $65 million. Furthermore, running on the Ethereum blockchain, Propy uses its native PRO token to power and incentivize honest participation with the application. Also, the application operates using computer power, code, and smart contracts.
Propy has processed over $4 billion in transactions, making it the leading automated real estate platform. Specifically, Propy makes it easy to buy or sell a home with a bank transfer, cryptocurrencies, or selling property as non-fungible token (NFT) assets. As such, Propy is a popular choice catering to both institutional and retail investors. Additionally, Propy is advocating education surrounding crypto and real estate. Accordingly, the platform provides a Crypto Real Estate Agent certification program to educate new investors.
ELYSIA (EL)
Another top real estate coins project is Elysia (EL), with a market cap of just over $12.5 million. The project operates as a decentralized autonomous organization (DAO) with a mission to facilitate “the digital transformation of real estate assets.” Specifically, the project positions itself as a bridge between traditional real estate owners and digital asset investors seeking investments. Proving a popular consideration for over 80,000 community members, Elysia protocol’s total value locked (TVL) exceeds $380 million.
Using smart contracts and its native EL token, Elysia DAO allows for seamless real-world asset tokenization and exchange. Real estate owners can receive unique tokenized representations of their assets containing all property details and documents. Following approval from the DAO, tokens will be available on a secondary market for sale or redemption. To maintain decentralization, users can stake the EL token to receive sEL tokens with governance rights. As such, sEL token holders can make and vote on proposals for Elysia DAO updates.
LABS Group (LABS)
Finally, our list of top real estate coins would not be complete without LABS Group. Marketing itself as the "world's first end-to-end estate digitization ecosystem", LABS Group provides security token issuance of real estate with a securities exchange marketplace. The project's mission is to increase accessibility and liquidity for real estate investors and developers. Promising accessibility to all types of investors, the website states: "Possession can be acquired for as little as 100 USDT".
With the use of smart contracts, LABS Group uses a non-fungible token (NFT) model for issuing and tokenizing real estate investments. Plus, users can exchange the native LAB token to purchase real estate around the world. For example, LABS Group opened Kunang Kunang Glamping Resort in Indonesia as one of the first crowd-funded projects. Using blockchain, real estate ownership, investment, and exchange are secure, fast, low-cost, and transparent.
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Pros and Cons of Crypto and Real Estate
Now that we're familiar with some crypto and real estate projects, let's consider some of the industry's pros and cons. Blockchain has the potential to revolutionize payments and transactions sector-wide. However, work is still needed on the technical side of global adoption (e.g., scalability, decentralization, and security). Moreover, raising awareness and providing engaging and accessible education about the technology is critical to onboarding new users.
Pros
Traders can invest in real estate coins to earn a passive income from the underlying real estate profit. Also, tokenizing and selling property for cryptocurrencies opens up a worldwide market of potential investors. Instead of expensive centralized intermediaries, investors can interact with blockchain networks, smart contracts, and decentralized escrow protocols to exchange property rights and cryptocurrencies. Further, crypto transactions provide near-instant transaction finality instead of taking months to verify and validate a property sale.
The traditional real estate industry is notoriously illiquid for the reasons above. In short, this means it takes a long time to gain access to the underlying capital of the real estate value. Property sales typically take months to complete with numerous expensive parties between the buyer and seller of a house. This includes banks, lawyers, architects, builders, and agents for both parties involved in the sale. Bridging the crypto and real estate industries creates an opportunity for peer-to-peer house sales. Plus, this would extend to international sales. Also, the tokenization and breakdown of shares or coins yield opportunities for a secondary market. This presents room for onboarding new users and expanding the liquidity of the crypto and real estate markets.
Cons
The crypto industry is infamous for its volatility seeing triple-figure returns and overnight liquidations. As a result, there is still great misunderstanding and concerns surrounding the investment. Real estate-related initial coin offerings (ICOs) are also a cause for concern surrounding investments. According to Ragnar Lifthrasir, the International Blockchain Real Estate Association president: "ICOs really set blockchain real estate back at least a year or two". Additionally, regulatory guidelines vary between governments and jurisdictions, generating confusion and challenges for internationally serving businesses.
Another challenge to consider regarding crypto and real estate is the industry's infancy, namely, the liquidity levels. As traditional real estate is famously illiquid, blockchain tokenization promises to alleviate this issue with shares or coins. However, for a crypto and real estate market to operate, there is a need for parties on both sides (i.e., buyers and sellers). This delicate balance needs to be navigated due diligently for true mass adoption to occur. Accordingly, Thomas Wiegelmann FRICS, Managing Director at Bue Asset Management, writes: "If there aren't many people who want to buy those assets, you have a higher exit risk. The first movers will have liquidity issues".
Exploring Real Estate Coins - Summary
A future of crypto and real estate working together is not unrealistic. Instead, it appears the real estate industry is testing the waters by integrating different blockchain frameworks. As such, the term "real estate coins" can confuse people as it implies the direct ownership of an underlying asset. However, this is not the case. The "Real Estate" categories listed on CoinGecko and CoinMarketCap show native assets of crypto real estate applications. The value of these tokens depends on an application's performance and adoption, not the value of the actual real estate.
That said, tokenization appears to be a natural progression from traditional fractional real estate ownership. Doing so will drastically reduce financial and geographical barriers for first-time real estate investors. Moreover, thanks to smart contracts and decentralized protocols, asset exchanges will no longer take months to complete. Rather, using a peer-to-peer system, buyers and sellers can use a decentralized escrow contract to exchange property rights and the respective crypto value. Nevertheless, before this can be achieved, there needs to be technical developments and education for onboarding non-crypto users.
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