Enrique Suárez
Mountx Real Estate Capital
Expert Contributor

Real Estate Investment Tech vs Inequality in Latin America

By Enrique Suárez | Wed, 09/23/2020 - 09:10

It's mind boggling that Latin America is the world's most unequal region in the world: the richest 10 percent of people in Latin America hold 71 percent of the region’s wealth, according to the World Economic Forum. If this trend continues, according to Oxfam’s calculations, in the coming years, the richest 1 percent in the region will have accumulated more wealth than the remaining 99 percent. A big reason for this gap is the low accessibility to secure investments like real estate.

Although its importance is widely recognized, financial inclusion remains extremely low in a large number of Latin American countries. According to World Bank calculations, financial inclusion in the region is 30 percent, far below the average ratio in high income countries (89 percent) and even below the world average (46 percent). 

Banking concentration is considered a measure of financial inefficiency to the extent that it might lead to oligopolistic behavior. The oligopolistic power arising from this high banking concentration leads to greater discrimination, lack of investment opportunities and to higher costs of opening and maintaining accounts than there would be in a more competitive banking system.

But we live in a time where technology, real estate and a global mindset can be a game changer for the region. 

Let's start with technology and DeFi, which stands for “decentralized finance” and refers to the ecosystem of financial applications that are being developed on top of blockchain. Think of DeFi as an open financial ecosystem where you can build financial tools and services in a decentralized manner. Since these are applications built on blockchain, they can be combined, modified, and integrated according to your needs. Just like Legos.

The real estate industry encompasses the many facets of property, including development, investing, leasing, and management of commercial, industrial and residential properties. Traditionally speaking, the real estate market has always been intimidatingly complex, regardless of whether you were just analyzing it or looking to invest in a piece of property. Real estate is one of the most illiquid asset classes, requiring significant capital commitments for long periods of time and entailing long, expensive transaction processes. 

Billionaire Andrew Carnegie famously said that 90 percent of millionaires got their wealth by investing in real estate. The problem is that not everyone had access to investing in real estate until now. Tokenization is the process of signifying a fractional ownership interest in an asset with a blockchain-based token. It means to divide the asset into shares (tokens) that you can sell to investors. Because the security is backed by the real estate asset, they are often called “security tokens” and whoever owns the token, owns a piece of whatever asset is associated with the token.

So, what makes us so confident that blockchain technology and real estate are such a good match? Here’s a quick rundown of the key qualities blockchain tokenization brings to the table: irrevocable documentation of the processes, impeccable transparency, traceability, accessibility, enhanced security, liquidity and cost reduction of processes.

Want to buy an asset share? Simply buy a token through the platform and that’s about it. The same goes for deciding to sell a token. There would be no traditional middleman to slow down the process, no procedures that get dragged out because of paperwork. 

And in case you think legal regulations could be a potential pitfall here, don’t worry – tokens can easily be created to have built-in compliance depending on factors from anti-money laundering regulation, regional regulations, buyer’s history or the asset type.

Due to smart contracts and the self-regulated logic they provide, a system with real estate tokenization would make managing one’s assets a lot more straightforward than what the case is right now.

Blockchain’s immutability is a significant reason why real estate tokenization holds as much promise as it does. The digital history of transactions held in the blockchain ledger would help stakeholders and investors prove their ownership beyond any doubt.

What’s more, such structure would reduce room for fraud. Users would not be able to sell someone else’s tokens as blockchain would not allow access to it without providing the correct private key. And if an asset owner tried to sell a certain token several times with hopes of conning the system, blockchain would show the exact history of ownership and make it impossible for someone to falsify transactions and trick investors.

While investing something like $10,000 dollars in a multimillion project would literally do more harm than good when you consider all the legal hoopla needed to make it official, providing such a miniature investment to a token-funded project would be totally viable as the system would rely on the automatic execution of smart contracts.

This means that becoming a fractional owner would be a much more realistic option for average people, even if all they wanted to invest was a few thousand dollars.

All systems running on a blockchain have a few things in common but most notably, they offer the best security the digital world can currently offer. Cryptographic encryption would protect the tokens representing the assets, meaning that the only way to gain access to them would be through the aforementioned use of private keys, something only the token owners would have in possession.

Another notable improvement real estate tokenization would provide us with is much clearer market transparency, which the real estate sector has been lacking for a very long time. The blockchain ledger would track the history of every single token, meaning that the conditions of every time it exchanged digital hands in the past would be public knowledge. Investors would be able to investigate past dealings and figure out if the asking price is realistic or not, leaving almost no room for unintentional over or underpaying.

It’s no secret that real estate investment is a game almost exclusively reserved for the rich and for institutions. However, with real estate tokenization, we’ve significantly increased opportunities for ordinary people to start investing in real estate assets.

This is why we created MountX Real Estate Capital, an international real estate investment platform (powered by blockchain) where we help Latin American investors to make a safe and profitable international investment, based on real estate investment technologies, without uncertainties, complexities and without depending on the traditional financial system.

This accessibility, never seen before, will open a new era in the region to generate wealth through secure real estate investments, closing the inequality gap and opening not only the local markets but the global real estate market. It will empower people to invest in the best opportunities the world can offer without the limitations of where they live. 

As part of the new wave of the DeFi ecosystem, we contribute to free Latin America from the banking concentration that limits the financial inclusion in the region and limits the investment opportunities to a select group of individuals. 

We are living an exciting time and in MountX, we believe that with the right mindset, knowledge, commitment and culture, we can transform the real estate investment industry, making it accessible to everyone, anytime, anywhere. 

For more information visit us at www.mountx.io

Photo by:   Enrique Suárez