Tokenise funds not assets says Oxford Saïd Business School
There is no shortage of optimism among blockchain entrepreneurs exploring new ways of investing in assets, but their attempts are largely failing and success may be years away, according to a new report.
Real estate tokenisation is a term used to describe the transfer and fractionalisation of the value of real estate assets, debt and funds into digital tokens using blockchain technology. It draws on the concepts of both crowdfunding and cryptocurrencies and promises a revolution in the way real estate is funded, bought and sold. Property technology entrepreneurs across the world believe this invention is about to change real estate investment forever.
The technology’s potential is compelling – young investors could place a foot on the property ladder with just a small sum of money and trade their investments in seconds. The fractionalisation of real estate ownership would improve liquidity by speeding up trading and reducing costs.
A report released today by the Oxford Future of Real Estate Initiative at Saïd Business School, University of Oxford in collaboration with Bryan Cave Leighton Paisner, CBRE and EY explores the true potential of tokenisation and its likely impact on the real estate industry. Titled ‘Tokenisation: the future of real estate investment?’ the 60-page report features extensive interviews with industry leaders, entrepreneurs and academics.
“Both primary and secondary real asset markets could in theory be transformed by financial technology in the way that online retailing and hospitality have been,” said author Prof Andrew Baum, leader of the Future of Real Estate Initiative.
However, investors and entrepreneurs alike should hold fire: the report found just 15 examples of successful real estate tokenisations, and many failures.
“The key mismatch between the popular conception of real estate tokenisation and a realistic vision of the near future is the often-painted picture of a single property asset being tokenised for the retail investor,” added Baum. However, he believes there is limited public demand for such a product, and no easy way to achieve it.
Instead, Baum found the future is much more likely to lie in the tokenisation of real estate funds, which are made up of diversified properties. This is because the investors are already fractionalised, and the legalities well established.
“Tokenisation offers exciting possibilities for the real estate investment market,” concluded Baum. “It is, however, at an early stage of its development… There is a clear danger that innovation will be set back by years and possibly decades if attention is focused solely on the digital fractionalisation of single assets, for which the demand may be limited, the economics unconvincing and the obstacles significant.”