Tokenized real estate can solve the property ownership crisis | Opinion

The dream of property ownership has become increasingly unattainable for the average earner, especially in Europe. While capital-rich investors purchase multiple properties, driving up housing prices, many potential buyers are priced out of the market, making homeownership an exclusive privilege for the wealthy.

The issue has become so severe for ordinary people that it is now causing a democratic backlash in major European countries. For instance, Spain’s Prime Minister Pedro Sanchez has suggested a 100 percent tax on any non-EU citizen buying a home in Spain. This is due to frustration over the monopoly foreign investors have created in the Spanish property market.

While the problem is continent-wide, Spain has faced the inequality of housing access on a unique scale. Speaking to an economic forum in Madrid, the Prime Minister outlined how social housing constitutes just 2.5 percent of Spain’s market, falling significantly below other major EU nations, such as 14 percent in France and 34 percent in the Netherlands.

Moreover, the Spanish coalition government plans to speed up the construction of new homes. The Bank of Spain has said that 600,000 new homes are needed by the end of 2025 but only 90,000 units are being built annually. This is an essential context to consider when people from outside the EU, including the post-Brexit UK, bought 27,000 houses a year in Spain, according to Mr Sanchez.

The proposal to introduce the 100 percent tax has, predictably, led to unease among many non-EU investors, such as Britons, who feel the Spanish government is unfairly targeting them. Industry insiders, such as Blacktower Financial Management Group, have warned that the property levy could only discourage investment in the country without solving the root problem of decreasing housing affordability and supply.

Existing hurdles to property investment

Significant obstacles are already in place for international investors, including notary fees, potential language barriers, and strict requirements for local financing. Therefore, tighter regulation of foreign investment alone may not effectively address this multifaceted issue.

Investing in new digital tools that broaden access and democratize property investment is one potential long-term solution to the European property affordability crisis for governments and industry leaders.

One of these new tools is tokenization, which is the process of turning a real-world asset, like real estate, into digital tokens that can be tracked, transferred, or traded on a blockchain. Each token represents a fraction of ownership in the asset, making it easy to divide, store, and exchange digitally. Assets in the physical world are converted into digital tokens and transferred or traded on a blockchain like Ethereum (ETH) or Solana (SOL). These tokens act as proof of ownership of the real-world asset.

Tokenization and property asset management

The tokenization of real estate can provide a fresh, innovative approach to addressing Europe’s property ownership crisis. In particular, it holds promise for tackling housing shortages and enabling broader access to property ownership.

Currently, to invest in property start-ups or real estate investment funds, one either needs to be an accredited investor or have an initial large amount of capital, which severely limits those with access to the property ladder.

Using blockchain technology, tokenization subverts the established paradigm. A property can instead be converted into digital tokens representing a fraction of legal ownership. With fractionalization, the tokenized property asset is split into smaller shares that enable all investors, no matter their portfolio size, to gain exposure to real estate.

One of the immediate advantages of tokenization in the real estate market is that it generates liquidity by making investment accessible and flexible to almost anyone with a laptop or mobile device. By enabling property investors to purchase a share of an asset instead of going through the tiresome and bureaucratic process of buying a property traditionally, tokenization negates the need for investors to put forward significant deposits upfront. This accomplishes two things: firstly, it immediately provides an avenue for local and global investors to own a piece of property. Secondly, it enables more investors to gain exposure to each asset.

Tokenization also opens properties to a global pool of investors. Since the property has been divided into multiple tokens that each represent a fraction of the asset, investors can buy or sell tokenized property on an exchange that is accessible to global players. With tokenization, complexities such as government regulations, cumbersome paperwork, and other localized inconveniences become almost nonexistent, removing much of the difficulties international investors might face in buying local assets.

However, rather than continue to price out would-be local investors, tokenisations simultaneously manage to open up access to those without existing large sums of capital as well as generate further revenue from international investors due to the reduction of barriers to entry.

Impact on fraud and malpractice 

Tokenization provides a streamlined pathway for all investors, whether they have low-risk appetites or smaller portfolios, to have a chance to own property, even if only pieces of it. Since tokenization platforms are built on blockchain ledgers, all tokenized real-world assets are managed by smart contracts, which facilitate how transactions and the ledger are managed. The real estate contracts are kept on-chain but remain separate.

Moreover, through the enhanced transparency and security of blockchain, each transaction or ownership transfer is recorded and cannot be altered, reducing the risk of fraud or corruption. This, in turn, leads to the building of confidence among investors who might be hesitant to enter a traditionally opaque real estate market. With more people trusting the system, this encourages market stability and accessibility to local and global investors alike.

A modern solution to a legacy problem

Considering that the issues facing the property market are multi-faceted and are not strictly limited to the domination of foreign investors in the market, taking advantage of these new forms of investment could open up pathways to property ownership that don’t come with the added concerns of dissuading potential fiscal injections into the country or encouraging capital flight.

European countries seeking to support more local citizens to invest in property must remove barriers and obstacles that make it difficult for smaller investors to compete with more established global buyers with bigger wallets. Rather than taxing wealthy overseas investors, which will only build distrust and drive away investment, European governments and real estate agents can embrace blockchain technology by tokenizing parts of a property on the market, fractionalizing the real-estate asset into smaller and more affordable pieces, which are available to all. By doing this, every investor now, both at home and abroad, has the chance to benefit from appreciation in their property markets as well.

This article first appeared at crypto.news