Tech
Blockchain-based technology could unlock the real estate market
By Carrie Cox
Digital ownership of real estate through blockchain-based technology could help young Australians find a way into the otherwise impenetrable property market, according to a finance expert at the University of Western Australia.
Dirk Baur, professor of finance at UWA’s Business School and director of UWA’s Blockchain and Cryptocurrency Research Centre, said the “tokenisation” of real-world real estate assets is already showing considerable promise in pioneering markets like Detroit in the United States.
The process allows a property to be divided into small digital units and sold to owners as tokens: for example, a $1 million property could be sold as 1,000 tokens, each worth $1,000.
It provides a much lower barrier to entry into the property market and potentially allows would-be homebuyers to build a deposit more quickly through proportional rental income and price appreciation.
Professor Baur said while the concept may spark initial opposition from Australian banks and real estate agents wary of the change, it should still be on the table for high-level discussion.
“I think governments should be very receptive to this idea,” Professor Baur said.
“It might not solve the property market as such, but it would give hope to young people to get straight into the market through digital shares and that would be a much quicker way for them to save for a deposit which, let’s face it, doesn’t grow anywhere near the rate same speed as real estate prices.
“With asset tokenization, the value of your shares increases as prices rise and I don’t see any harm in that – it has a lot of potential.”
Other benefits of asset tokenization include greater liquidity, as tokens can be traded on digital exchanges, and easier diversification of real estate stock portfolios to reduce risk.
According to Professor Baur, safety is also an advantage.
“The bitcoin system itself has never been hacked,” he said. “Hacking has happened to individual exchanges and platforms, but never to the original blockchain technology, which is surprisingly secure.”
In Detroit, where private firm RealT began tokenizing the flat real estate market in 2019, an independent academic study published in 2023 found that “tokenization delivers on its promise and leads to widespread ownership of modest-value properties, which leads to a substantial sharing of risk between families”.
Many financial commentators believe that real estate, the world’s largest store of wealth, is the next frontier for cryptocurrencies and could triple the value of the trillion-dollar cryptocurrency market with tokenization of just 1% of real estate global.
For now, Australia’s adoption of cryptocurrency investing remains moderate by global standards, dominated by financial investors looking to diversify their holdings and achieve more efficient asset movement.
According to Professor Baur, who regularly consults the financial and banking sector to track developments in the cryptocurrency sector, Australia’s crypto positioning currently lies between Switzerland and the United States.
“We are quite centrist and semi-open in our position: somewhere between Switzerland, where there is a cryptocurrency valley, and the US where, despite the approval of Exchange Traded Funds (ETFs) earlier this year , there is a high level of anti-cryptocurrency.” feeling,” she said.
“Regulatory uncertainty remains a challenge in Australia – a barrier to entry that has seen many local start-ups relocate to Switzerland.”