Blockchain technology has revolutionised various industries and property is no exception. By offering transparency, efficiency and security, blockchain is transforming how people invest in property. One of the most exciting applications of blockchain in property is fractional ownership, where investors can own a fraction of a property through tokenisation. This approach opens up new opportunities for investors who want to diversify their portfolios without the barriers traditionally associated with real estate.

In this blog, I will explore the advantages and disadvantages of blockchain property investing, focusing on fractional ownership, and what these developments could mean for the future of property investment.

 

 

What Is Blockchain Property Investing?

Blockchain technology is a decentralised ledger that records transactions across multiple computers in a secure, transparent and immutable way. In property, this technology allows properties to be tokenised—converted into digital tokens that represent ownership. These tokens can be bought, sold, or traded on blockchain platforms, much like cryptocurrencies.

Fractional ownership refers to the practice of dividing property into multiple smaller ownership units, which are then tokenised and sold to investors. Each investor owns a portion of the property and can benefit from its appreciation, rental income, or eventual sale.

Advantages of Blockchain Property Investing

1. Lower Barriers to Entry

One of the most significant advantages of blockchain property investing, especially through fractional ownership, is that it lowers the barriers to entry. Traditionally, property investing requires substantial capital outlay, making it inaccessible to many investors. Blockchain allows investors to buy smaller fractions of properties with significantly lower capital requirements, making property investment more affordable for a wider audience.

2. Increased Liquidity

Property is typically considered an illiquid asset, as buying or selling property is time-consuming and costly. Blockchain technology and fractional ownership increase liquidity by enabling investors to trade property tokens quickly on various platforms. Investors can buy or sell their shares in a property without waiting months for a full property transaction to complete.

3. Transparency and Security

Blockchain’s decentralised nature provides enhanced transparency. Transactions are recorded on a public ledger, ensuring that ownership records, contract terms and transaction histories are easily verifiable and cannot be altered. This transparency reduces the risk of fraud and misrepresentation, offering a more secure way of investing in property.

4. Global Accessibility

With blockchain, property investments are no longer limited by geography. Investors from anywhere in the world can invest in properties across different markets, giving them access to opportunities they might not otherwise have. This global accessibility can diversify an investor’s portfolio and spread risk across various regions.

5. Cost Efficiency

Traditional property transactions involve multiple intermediaries—mortgage brokers, legal advisers, estate agents, valuers and banks—each charging fees. Blockchain eliminates many of these middlemen by using smart contracts which automatically execute transactions when specific conditions are met. This reduces transaction costs and speeds up the process.

6. Fractional Ownership Benefits

Fractional ownership offers investors the ability to diversify their portfolios by owning small fractions of several properties, rather than committing large sums to a single property. This reduces risk and allows investors to spread their capital across multiple property markets and asset classes. Moreover, fractional ownership makes it easier for investors to invest in high-value properties like commercial buildings or luxury estates that they would not be able to afford outright.

 

 

Disadvantages of Blockchain Property Investing

1. Regulatory Uncertainty

One of the primary challenges facing blockchain property investing is regulatory uncertainty. While blockchain and cryptocurrency regulations are evolving, there is still a lack of clarity on how governments will regulate tokenised property assets. Investors may face legal challenges or unforeseen tax implications as regulations continue to evolve.

2. Market Volatility

While property is traditionally a stable and appreciating asset, the blockchain platforms used for tokenising real estate could be subject to volatility, similar to the cryptocurrency market. The value of property tokens may fluctuate, not necessarily based on the property’s actual market value but due to speculation or shifts in the broader crypto market.

3. Limited Adoption

Despite its potential, blockchain property investing is still in its early stages. Adoption is relatively limited and the number of platforms offering blockchain-based property transactions is still small. This limited adoption could mean fewer investment opportunities, lower liquidity than anticipated and potential challenges in selling investments.

4. Technology Risks

While blockchain technology is secure, it is not immune to technical risks, including hacking, bugs or platform failures. Investors need to be aware of these risks, as any disruption in the blockchain infrastructure could impact their investments. Additionally, the irreversible nature of blockchain transactions can be a disadvantage if mistakes are made during the process.

5. Legal and Ownership Complications

Blockchain property investing introduces complexities regarding legal ownership. Although blockchain technology can provide transparency in transactions, the legal systems in various jurisdictions may not yet recognise tokenised ownership as equivalent to traditional property deeds. This could create complications in enforcing property rights or settling disputes.

6. Illiquidity in Some Cases

While fractional ownership and blockchain promise increased liquidity, some property markets or specific platforms may not yet have enough buyers and sellers to make token trading as liquid as expected. Depending on the platform or property, investors may still face challenges when trying to sell their property tokens quickly.

Conclusion

Blockchain technology and fractional ownership offer exciting new opportunities for real estate investing by lowering barriers, increasing transparency, and providing liquidity. These advantages make property investment more accessible to a global pool of investors who may have previously found it too costly or complex to enter the market.

However, blockchain property investing also comes with certain risks, including regulatory uncertainty, market volatility and limited adoption. Investors need to conduct thorough due diligence and stay informed about the evolving legal and technological landscape before diving into blockchain-based property investments.

As blockchain technology continues to mature, it has the potential to transform the property sector, making it a more efficient, accessible and transparent market. For now, the best approach for interested investors is to start small, diversify across platforms and assets and seek professional advice to navigate the potential risks and opportunities.  You know it makes sense.*

 

*RISK WARNING

Blockchain property investing is a high-risk investment and you should be prepared to lose all the money you have invested. It’s important to remember that once your money is in the ecosystem, there are no rules to protect it, unlike other investments. If you make any blockchain property investments, you’re unlikely to have access to the Financial Services Compensation Scheme (FSCS) or the  Financial Ombudsman Service (FOS) if something goes wrong. The value of investments can fall as well as rise. You may not get back what you invest. The information contained within this blog is for guidance only and does not constitute advice which should be sought before taking any action or inaction. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. The Financial Conduct Authority does not regulate tax planning, estate planning, or trusts.  This blog is based on my own observations and opinions.