Blockchain is not only about Bitcoin, the ground breaking technology is disrupting many ecosystems and it's now hitting the real estate markets as well.
Diversification of a portfolio requires some serious studying. Most pundits will advise diversification into precious metals as well as some form of real asset like residential or commercial real estate.
However, should you buy at all? Is real estate in a bubble? And should you buy residential or commercial? Further, what percentage of your portfolio should be tied into non-liquid real assets?
Residential Bubble?
The residential real estate market globally has risen substantially, and appears to be on a continued upward trajectory. According to the International Monetary Fund (IMF), the global housing market has continued its long recovery from the massive sell-off of 2008.
While this return to the previous bubble levels may cause some concern, the IMF and other financial analysts believe the changing supply constraints that were not present in the previous boom have created this new uptick. In fact, the excessive credit growth that drove the last bubble is not present, and real market forces of supply and demand are moving the market forward in a healthy pattern.
The substantial lows that the market faced between 2008 and 2013 have been compensated for, and the increasing demand with limited supply is driving the market forward. These combined forces indicate that we are not near a topping point.
Commercial Real Estate
The commercial market globally has continued to show strong signs of growth as well. The leasing market is very strong globally, and especially in Western Europe, where leases are going rapidly. Economic growth is combining with a new startup vigor to produce a run on office spaces for lease in most European cities.
While annual rental growth in the US has slowed to just 3% and large box retailers seem to be shuttering around the world, the actual effect of these changes is not as dramatic as may be thought.
Further, rental lease prices have continued their upward mobility in large part due to low supply and high demand of logistics spaces. The price point for these spaces has risen significantly, and shows little sign of stopping.
In fact, according to one commercial analyst:
National vacancy in the U.S. declined again during the second quarter while rents increased by nearly 6.5% on an annualised basis to reach US$5.35 per square foot, an all-time high. We anticipate that rents will continue on their strong upward track through the rest of 2017.
How to Invest?
Rising house prices and rising commercial leases. Sounds like a good time to get in on the market. However, there are some substantial issues to consider.
First, investors should be careful when purchasing new properties internationally. While much of the burgeoning real estate market is shaping up nicely for foreign properties, making certain that you have the right legal protections in place can be far more difficult overseas.
Second, investment in real estate does not always have to be an all-or-nothing proposition. One option for investors is a Real Estate Investment Trust (commonly called a REIT - rhymes with wheat). The REIT is a company that owns income producing real estate. The company is sold via shares to investors who then own partial stake in the real estate assets of the company.
While REITs have been a popular method of diversification, the amount of profit they take off the top and the general increase in risk factor have soured investors.
However, a new player in the market called ATLANT is working on another option - ‘tokenized’ real estate transactions. Based on the blockchain technology that support Bitcoin, ATLANT has created a platform where investors can purchase shares of real property via ATL tokens (think digital currency).
The tokens can be purchased during an Initial Token Offering, set to kick off September 7th and close October 7th. Investors can acquire the tokens using Ethereum, and can then use them within the platform to purchase shares in varying real estate within the portfolio.
ATLANT’s system has a couple of side benefits that REITs simply don’t. First, ATLANT doesn’t have a centralized hub corporation that takes profits. Not only does this decentralized structure drive down fees per transaction, but it means that all the profits from the platform go back into the value of the ATL. Investors can cash out of their ATL at any time via an exchange.
Second, ATLANT’s system allows buyers, sellers, and renters to store document for free, through the blockchain, which is completely secure and transparent. Documents are forever saved on the distributed ledger and cannot be altered.
Whether you purchase directly from brokers, or use a REIT or a platform like ATLANT, its a good time to diversify. Supply and demand numbers prove the time is right to move into this market space.