Real estate has been one of the most valuable forms of accumulating and storing wealth since time immemorial. This market was valued at $326.5 billion in 2020, more than that of debt securities and global equities combined. However, despite being a lucrative form of investment, millennials are facing a much harder time than Gen X and boomers in their quest to acquire any form of real estate, including homes.
First, it was the 2008 financial crisis that saw home prices skyrocket, and later the bubble burst, ushering in the great recession. As a result, many millennials have had to deal with the aftereffects of the 2008 housing market in the early stages of their careers. This explains why only 42% of millennials own a home by age 30, compared to Gen X and boomers at 48% and 51%, respectively.
More recently, the Covid pandemic has further exacerbated the situation. Besides massive layoffs, average mortgage rates have risen significantly due to increasing inflation, which at one point hit 9% in the US. The latest data now reveals that 30-year mortgage rates are averaging 7.24%, still higher than the 2008 high of 6.63% when the housing market peaked.
Real Estate Investments: Steady Growth Over Time
While the promise of owning real estate may seem elusive for millennials, the most important thing for this generation to remember is its steady growth in value over time.
According to data from the National Council of Real Estate Investment Fiduciaries (NCREIF), the average ROI for commercial real estate over the past 25 years as of Q1 2021 has outperformed the S&P 500. The former recorded annualized returns of 10.3%, while the latter was 9.6%.
Luckily, with the emergence of sophisticated financial instruments such as Real Estate Investment Trusts (REITs), one doesn't need to purchase an entire piece of property. REITs operate like shares, giving owners exposure to the real estate market without necessarily being involved in the nitty-gritty of capital allocation and day-to-day operations.
Tokenization: The New form of Real Estate Ownership
Even more promising is the intersection of real estate with blockchain technology, known as tokenization. Simply put, tokenization is the process of integrating real-world assets with on-chain economies by allocating them unique, digitally recorded, and transferable rights that can be easily audited or tracked to view changes in ownership over time.
BCG estimates that this market will balloon to a $16 trillion niche by 2030 given its value proposition. Most importantly, tokenization allows for fractional ownership of real estate. Today, this is possible through Web3 ecosystems like Metatime, which offers a real estate tokenization platform called MetaRealEstate.
Ideally, the MetaRealEstate platform allows property owners to tokenize their assets. For example, an apartment block owner can choose to tokenize their property and list it on MetaRealEstate, allowing interested buyers to purchase smaller portions, earning them a share of the total income generated from the property.
This new form of real estate ownership not only has the potential to provide access to the global real estate market but also to improve the transparency of the transfer and verification process. Moreover, the decentralization of the real estate market will likely address the supply shortfall in some countries, ultimately bringing prices down to levels affordable for millennials.
Hospitality Real Estate - Another Booming Niche!
Apart from home ownership, hospitality real estate is another sector that is undergoing massive transformation that could present opportunities for the new generation of investors. The rise of the shared economy has made it possible for homeowners with idle property to generate income in the hospitality sector through companies like AirBnb.
And with tokenization now in the picture, the dynamics of real estate investing in hospitality are getting simpler by the day. For example, LABS Group, a blockchain-based real estate investment firm, recently distributed dividends to investors who had acquired NFT tokens representing ownership in their flagship project, Kunang Kunang Tent Resort located in Indonesia.
What’s particularly intriguing about these NFTs is that unlike traditional timeshares, they can be traded in secondary markets like Staynex without going through a broker. This makes it a viable form of investment for millennials looking to buy flexible timeshares for stays as well as those looking to invest in long term assets that will continuously generate income.
“If you buy a house to live in, it is technically yours. But if you rent it out, you derive an income. So, if you have 30 nights reserved, you can stay in the hotel for 30 nights. But if you don’t claim it, or only use a portion, the hotel still sells the rooms and you get a share of the operation income just by holding on to the NFT.” explained LABS Group CEO Bernard Lau.
Conclusion
As highlighted in this article, real estate is slowly becoming decentralized, which could be a significant game changer in the future of property ownership. Gone are the days when one was limited to buying an entire piece of property; millennials now have the opportunity to own real estate in the form of tokenized assets. Notably, this market niche is also attracting a lot of attention, especially from traditional financial institutions that are looking to tokenize their offerings, including bonds, equities, and commodities.
