How could real estate investment become accessible for small-scale investors?

In this article, we will look at the current and future states of the global real estate investment market, as well as how technology can help to facilitate a shift in the real estate investment industry.

The emphasis is on the numerous obstacles and barriers that small-scale investors face when attempting to enter the world of real estate investing and trading, as well as the untapped value for real estate owners and their access to a new form of liquidity, while providing an overview of how Memar is able to overcome these obstacles. Hat is the current state of the global real estate investment industry?

Before we offer a glimpse into what the future of real estate investment might look like, it is worth highlighting how the industry is constructed and deals with new technologies today.

Real estate is the world's largest asset class, with a total value of $217 trillion (Savills Report — around the world in dollars and cents). Only 1% of this total value changes hands each year.

This value is unevenly distributed, with the majority of it concentrated in America and Europe (50 and 25%, respectively).

Although real estate is a popular investment class and remains one of the most reliable ways for individuals to increase their personal wealth on a small scale, real estate investment is complicated, convoluted, and costly. Because there has never been a standardized source of real estate pricing data, it is by far the most difficult investment category to analyze.

?“The cold fact is that one-third of the industry still runs on Microsoft Excel. Research shows that there is not only a lack of innovation, but also a lack of understanding of what innovation is and its potential impact on the industry.” (Industry news, real estate)

Why is this a problem?

Given that the global real estate market is estimated to be worth trillions of dollars and only 1% of it is moved and transacted, there is a large amount of illiquid assets on the balance sheets of corporations, investment firms, and individuals.

Real estate has repeatedly proven to be a successful long-term investment strategy. Real estate ownership is a secure and value-appreciating asset, providing a stable and lucrative return on investment for those who own property all over the world due to its tangible nature and in line with an increasing global population. In addition to capital appreciation, real estate owners can benefit from fixed income and monthly fixed returns through rental income.

Aside from real estate ownership, trading real estate, or buying and selling it, is a relatively safe way to invest one's money. Real estate trading is a viable and profitable investment option due to value appreciation, capital growth, and gains in both the short and long term.

With only 1% of the world's property traded, however, only a small number of people have the ability to profit from real estate trading and investing.

What are the entry barriers excluding so many people from investing in real estate?

Firstly, the world of real estate investment is characterized by ever-increasingly high 'buy-in' prices. A large, concentrated sum of capital is required to purchase or trade real estate, whether you are an individual or an organization. Naturally, this is not available to every small-scale investor.

Second, even if an individual has the necessary capital to invest in real estate, the industry is structured in such a way that many 'good' or 'lucrative' investment opportunities are 'locked up' behind the screens of high-profile investor networks or 'old boys clubs.' This is especially true for investment opportunities that are located outside of a person's immediate periphery (country, city, or neighborhood), where they lack the necessary know-how, connections, or entry points to potential investment opportunities.

The third, and arguably one of the most important, barrier to entry into the world of real estate trading for small-scale investors is liquidity. Because of the large, concentrated sum of capital that goes into brick-by-brick construction, investor money is frequently 'locked up' for several years, rendering such capital fundamentally 'illiquid' during that time frame.

The fourth major feature of today's real estate market is commission fees and middlemen. Current trading practices, as well as local rules and legislation, necessitate a significant amount of administrative work, which, when combined with third-party agents or "middle men," results in significant costs that further reduce the net profitability of your assets.

The fifth and final barrier to entry I'd like to highlight is diversification.

Because the current real estate market necessitates large investments and capital injections, investors find it difficult to diversify their portfolios. This is especially true for the vast majority of'small-scale' investors who want to diversify their portfolios with real estate but are unable to do so due to its nearly impenetrable nature.

To summarize, the current global market for real estate trading is characterized by various entry barriers, resulting in limited access to investment opportunities for those seeking to invest in real estate, with a focus on small-scale investors.

How can technology facilitate a shift away from this?

We believe that in the future, real estate will be digitized: recordings will be digital, deeds will be transferred via blockchain, and real estate assets will be tokenized.

Despite its reputation as 'overkill' in the emerging tech scene, the principles of Blockchain technology, combined with that of 'tokenization,' enable the aforementioned challenges to be overcome.

To begin, Blockchain technology has resulted in the introduction of smart contracts, which can have a significant impact in facilitating a shift toward a more equitable and accessible real estate industry.

A smart contract is an immutable program that is stored in the Blockchain and executed by all of its nodes. This decentralized computing technique enables parties' agreements to be expressed in programming language and transparently executed without the need for a trusted intermediary.

When sensitive processes, such as value transactions and ownership transfers, are externalized as smart contracts, a high level of transparency, trust, and neutrality is achieved.

This is where the concept of 'tokenization' comes into play. This is the process of converting an asset into a digital 'token' that is created, transferred, and secured using immutable smart contracts.

If real estate assets could be'tokenized,' so that investment opportunities are represented as their own digital tokens, then investment deals and trading opportunities could be easily facilitated via smart contracts, as previously described. This eliminates the traditional processes required for a real estate 'deal' to close. In other words, in the context of real estate trading, the combination of smart contracts and 'tokenization' allows us to move away from the dominant reliance on notarized documents, lawyers, surveyors, and banks. We'd have a more secure, less corruptible ecosystem of investment opportunities enabled by smart contracts in their place.

The missing piece in this equation is a tokenized real estate exchange platform or "marketplace."

If there was a real estate exchange platform that could seamlessly connect real estate owners to investors, regardless of investment capacity or physical location, we would be several steps closer to a global real estate market that is not only transparent, but also fundamentally accessible.

Enter Memar, a real estate exchange platform that allows anyone to trade real estate assets similarly to how stocks are traded.

We are developing Memar exchange to address the challenges and obstacles in the real estate market, as well as to ensure that real estate does not fall behind in the transition to a 'decentralized' future.

Memar will be an open decentralized Real Estate Marketplace that will allow for fractional real estate investment and trading via asset-backed tokens.

What’s our objective?

To provide transparency, accessibility, and liquidity to all real estate owners and investors worldwide.

By constructing the envisioned 'future solution' in the manner described above, we address transparency and accessibility.

We are also addressing the issue of illiquidity as a differentiating factor in comparison to our competitors.

How does Memar solve the issue of liquidity?

Asset liquidity is defined as the ease with which assets can be sold and converted into fully 'liquid' cash.

The term 'liquidity discount' is well known in the real estate industry. Because large sums of money are required for certain real estate investments, the number of capable ('liquid') buyers who can purchase real estate is limited. For example, if a property is listed for $100 million, only a small number of potential investors will be able to invest. This creates a 'buyers' market, in which a real estate seller is forced to lower their price (and offer a discount) because there is limited liquidity for purchasing the real estate in the first place.

What evidence do we have? Because the normal rental return on larger pieces of real estate is between 12-14%, while the return on a smaller real estate asset (of around $1 million) is between 7-8%, at least in the US and the Middle East.

Through our fractional ownership model, an investment opportunity can be presented to a larger group of investors with Memar. As a result, more 'liquid' cash enters the equation, as the large capital sum required is distributed among a large number of investors. As a result, the property seller can sell at a higher price, while investors can still earn very attractive returns. In other words, Memar makes it possible for a $100 million piece of real estate with a 12% rental return rate to be sold for $120 million with a 10% return to the investor. This return rate is still very appealing to'small ticket' investors, as it avoids the issue of liquidity in relation to the large asset. Instead of trying to sell a $120 million asset, they can simply sell their asset-backed tokens on the Memar exchange in real time.

Fractionalized Real Estate and Investor pools

Memar also overcomes the challenges that small-scale real estate investors face by using fractionalized real estate and investor pools. Unlike traditional investor pools, which typically consist of small groups of people each with large sums of money, Memar allows large groups of people to each contribute smaller amounts, such as $5.000 to $10.000. Large investor pools are easier to manage, attract, and satisfy with returns of 7 to 9% when using a fractional ownership model.

Tokenization

Tokenizing a real asset makes it much easier to transfer a portion of ownership to other investors. By tokenizing this, you can make parts of the asset liquid without having to sell the entire asset.

Tokenization improves liquidity by shortening the buying and selling of real estate. Furthermore, by tokenizing real estate assets and distributing the tokens to a large group of investors, instant liquidity for a traditionally illiquid asset is created. Small fractions of a real estate asset can be easily sold using the token. It is tradeable, portable, and reasonably priced.

As a result, tokenization generates instant liquidity.

Conclusion

Memar is on a mission to help move the real estate industry into a new era by leveraging the latest technological opportunities by applying the principles outlined above. More than that, we firmly believe that real estate trading and investment should be made far more accessible, allowing an increasing number of people all over the world to benefit from the financial prosperity that it can provide. This entails departing from conventional practices and the business-as-usual approach to real estate investment.

We'd like as many people as possible to join us on this adventure.

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