Creating Liquidity of Homeownership by Blockchain Technology: Study on the tokenization of homeownership
Topics: Economic Geography
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Keywords: Financial Geography, Tokenization, Homeownership, Blockchain
Session Type: Virtual Paper
Day: Friday
Session Start / End Time: 4/9/2021 08:00 AM (Pacific Time (US & Canada)) - 4/9/2021 09:15 AM (Pacific Time (US & Canada))
Room: Virtual 38
Authors:
Dasom Hong,
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Abstract
This paper analyzes the economic mechanisms of blockchain real estate companies that tokenize real estate properties, especially homeownership. The tokenization of assets refers to the process of issuing a blockchain token that digitally represents a real tradable property. Several blockchain real estate companies have tried to tokenize properties, which creates and circulates fractional ownerships in blockchain networks. If a landlord uploads a house in the blockchain platform, the platform issues security tokens representing fractional ownership and right to the beneficiary of the house. The investors holding the tokens benefit from rental income and the potential increase in housing price. Moreover, investors might trade the tokens in blockchain networks and fractionalize them more finely. As tokenization enables direct investment in homeownership that is originally illiquid, it differs from mortgage loan securities and indirect real estate investment measures like REITs. This paper underlines the process that blockchain technology creates liquidity of homeownership and its effects. For this, it investigates the business models and logics of the blockchain real estate companies through their white papers and documents. The major findings are as follows. First, the conversion of housing into tokens promotes the production of space generating additional cash flows beyond the original use value of a house. Second, the companies assert “democratization in real estate” based on enhanced accessibility to homeownership, but it inevitably requires continuous rental income and housing price inflation. Finally, the exchange of fractional ownerships in broad blockchain networks has a possibility to cause volatility in housing prices and rents.
