A month ago, the Israel Land Authority (RAMI) published a local tender for blockchain consultants. The small print in the tender reveals RAMI is interested in far more than a digital land registry. It plans to build an exchange for trading tokenized real estate.
The plans include:
- registering assets and managing licenses, transactions and (rental) agreements with smart contracts
- tokenization of real estate: purchase, sale, rental, investment, distribution of profits
- building an exchange for trading tokens and receiving royalties.
Tokenization of real estate
As context, last year the Boston Consulting Group forecast that asset tokenization could reach more than $16 trillion by 2030, with almost 20% of that in real estate. Arguably, Japan is the most advanced jurisdiction when it comes to tokenization. Real estate backed digital securities dominate the market.
Tokenized real estate tends to differ from real estate investment trusts (REIT), which usually involves a portfolio. Instead, with tokenization the target is often individual properties, residential apartment blocks and sometimes commercial space.
One of the biggest benefits of tokenization is fractionalization. Someone can have a tiny investment in an asset they usually could not usually afford. The flip side is that a bigger pool of investors can potentially improve the liquidity of an asset.
Blockchain is known for removing some of the intermediaries, something discussed in a Jerusalem Post article. It may be true that you can buy a token from an exchange directly. However, there may need to be extra steps to avoid investors getting duped.
Looking at the number of crypto scams, one can only imagine the coming onslaught of exotic tokenized properties in remote lands. It’s risky to buy tokenized property from a firm you’ve never heard of.
Instead, in Japan most of the tokenizations involve major trust banks. For real estate, there’s a need for a trusted third party to bridge the physical and digital worlds.
Circling back to Israel, that’s why the land registry operating the token trading platform makes quite a bit of sense. They can vouch for the details of the property that underpins the token.
Blockchain benefits without tokenization
Blockchain can offer benefits even without tokenization. One is the potential to use blockchain as the land registry. A few years ago, there were several examples of blockchain deployed for land registries in third world countries.
While many tout this as preventing corruption, that’s not the case. It’s still possible for a land registry insider to fraudulently add the wrong owner to a property when loading data. However, it makes it harder for third parties to make changes without being noticed.
In the UK, Coadjute uses blockchain for the property sale process. It enables far greater transparency for all participants during the long and stressful sales process.
We didn’t list all the Israeli tender’s details, but this sort of Coadjute solution is also on the cards.
If anyone is interested in participating in the tender, it is still open, but limited to Israeli firms.