DISRUPTIVE AND INNOVATIVE TECHNOLOGIES IN THE REAL ESTATE SECTOR: TRANSFORMATION.
Copyright 2022 Christiana Aristidou LLC
Real estate is being transformed thanks to technology, globally. Cyprus, a country with a strong real estate sector, is welcoming all technological advances in real estate. Cyprus being receptive to using and integrating technology demonstrates the country’s willingness to adopt and lead the latest developments in real estate.
The technology used or explored differs based on the needs and anticipated gains of businesses. Often, a combination of technologies can help achieve the most potential for businesses. As advisors in real estate projects, we are witnessing a considerable increase in using and exploring disruptive technologies.
We present some significant innovative technologies in the industry:
- Blockchain and smart contracts can improve many aspects. For example, construction project managers have been assessing the use of blockchain to provide efficiency in project management (e.g., blockchain-based BIM). Tokenisation is another important use we discuss below.
- Businesses implement solutions based on Artificial Intelligence and Machine Learning with predictive capabilities which can improve property search accuracy, property market trends analysis, and the processing of all kinds of real estate, property, and construction data.
- This also connects with Big Data and Analytics which allows the processes of large volumes of data. Data are involved in virtually all steps and applications in real estate, property, and construction; businesses in the industry try to harness the commercial value of such data through these technologies.
- Virtual Reality and Augment Reality is an extremely useful tool for the architecture and construction stage allowing the early visualisation of designs and, therefore, better construction project management. It also provides access to virtual property tours in future constructions and for interested buyers and tenants for their online and long-distance search; online search and long-distance buyers are extremely popular in the industry.
- The use of drones is increasing across the real estate industry, as they can be used for inaccessible areas, creating a great virtual experience in an efficient and low-cost way.
Many clients approach us proposing business models combining the above and other technologies. We are well-poised to help our clients select the most appropriate solutions (from using digital contracts with qualified e-signatures, to smart contracts, accepting cryptocurrencies, tokenising real estate properties, raising capital with innovative financial instruments, etc.)
The widespread use of blockchain in the real estate sector is a case of “when”, not “if”.
Technology opens the door for new and groundbreaking business use cases. Blockchain is one of these technologies that is bound to impact the real estate, property, and construction industry.
Blockchain is a digital ledger ensuring a transparent, immutable, secure, and trusted recording of data/transactions. This is bound to impact the real estate, property, and construction industry in many ways. Users can reap the full benefits of blockchain using smart contracts. Smart contracts are a technology that operates on blockchain and allows the automatic execution of actions based on pre-determined conditions, without a human being having to intervene for the execution.
Blockchain is used for real estate investment mainly through tokenization.
Tokenization is the process of moving a non-digital real estate asset to a digital form (token) using blockchain. Tokens represent a real-life asset or object, including properties. A real-life asset or object may be broken down into many tokens, which means that a real-life asset can be digitally fractionalised into tokens. Tokens can represent a fraction in the ownership of or a right or entitlement in a real-world asset, like property.
Most businesses that use tokenisation, fractionalise a real-life asset into tokens and offer these tokens for sale to various users/investors to finance their future projects (property funding and project financing via tokenisation) or sell existing property to many investors (tokenisation enables the expansion of one’s investor base). Tokenisation allows businesses to tokenise whole properties or interests in entities that own such properties. This kind of flexibility in tokenisation is an additional benefit and attractive feature of tokenisation, since businesses can tailor this process to their needs.
Tokenization increases access to investment and offers liquidity; fractionalisation widens the pool of potential investors because of a potentially lower cost per token/unit and tokens being usually easily tradeable. Projects using tokenisation may also reach a wide geographic scope of investors since distance investment transactions are carried out easily and efficiently, securely, and transparently because of blockchain. Blockchain is a trusted system, therefore businesses can interact with users confidently. Other solutions facilitate the interaction of businesses and investors/users. Sophisticated KYC/AML systems help businesses to interact with whitelisted investors/users that have proven their identity. Signing distance and digital contracts can now be carried out using secure means of electronic signatures (in accordance with the law that applies throughout the European Union).
To carry out the tokenization clients must first decide the kind of structure 1) for the entities carrying out the tokenization and 2) for the tokens. Tokenization comes in different structures with diverse rights attached to the tokens. Some clients choose to:
- tokenize single, whole properties through unique tokens, the so-called Non-Fungible Tokens (NFTs). NFTs are becoming increasingly popular and are a good use case for properties that are unique in nature.
- carry out Security Token Offerings (STOs) by tokenizing security-like interests in entities that, either own properties or wish to raise capital for construction (shares in companies, bond interests, units in funds), offering corresponding entitlements to investors (dividends, return on bonds, entitlement to property rent) and also offer tokens that provide different kinds of income to investors as a return.
- issue utility tokens to grant rewards for the maintenance of their property platforms.
We handle the legal issues involved in the token and entity structure. We draft opinions, prepare the token offering documents, ensure that the structure is legally compliant, and we use platforms welcoming real estate token offering projects to list our clients’ offerings.
We help move the project to the blockchain considering the technical and practical implementation and prepare the terms, conditions, policies, in the light of the legal and business considerations, as well as and the checks and processes used for compliance purposes
Then, the performance of the tokenization and execution of post-tokenization actions are ensured. The final step is the arrangement of the secondary trading of tokens. Clients also list their tokens on secondary exchanges to create liquidity and render their tokens more appealing to investors.
In all the stages, legal advice is crucial together with consultation from an accounting, financial, business and technical perspective.