How to save money from real estate tokenization? Be a part of the revolutionary next-gen innovation that has made investing in real estate more simple, accessible, and inclusive!
The Current Real Estate Scenario
The global real estate market is worth $228 trillion. The size of institutionally managed real estate sector rose to $8.5 trillion in 2017. While the real estate market has always been a lucrative opportunity for investment, it is sadly controlled by relatively few organizations. One of the primary reasons for a few firms dominating this market of real estate is owing to the sector holding illiquid assets.
In addition to this, the process of transactions in real estate assets is largely obscure and faces multiple challenges. Even in the technological era, there has not been any revolutionary change that can be applied to solve the woes of this industry. Until now!
Blockchain technology has given an innovative tool of tokenization that enables digital securitization of real estate properties. Tokenizing of real estate assets will allow representing physical properties into digital assets on a secure and transparent blockchain ledger.
Tokenization In Real Estate
Tokenization on blockchain technology will give way to a new future for real estate markets. The one that is more inclusive and more liquid. It further facilitates a system that enables frictionless transactions of money and real estate assets.
Blockchain is essentially a decentralized ledger that records information, documents, and transactions. In the case of the real estate industry, these immutable ledgers will record land titles, registration, and the transaction of assets on a shared platform.
Tokenization further enables raising security tokens equivalent to its physical counterpart on a blockchain network. It allows any individual to buy pieces of property, in the form of digital tokens, instead of investing in the entire property. As a result of this, new markets will open up that would allow a greater flow of liquidity and management of ownership on a decentralized platform.
Tokenized Real Estate: A Reality
The concept of tokenizing real estate properties has already turned into a reality. Physical real estate asset is divided into digital tokens, that are further represented on a blockchain network such as ethereum. These tokens enable identifying ownership, transferring it on a decentralized platform, and facilitate the trading of tokens on a secondary market.
How Does it Work?
Blockchain-enabled tokenization facilitates developers, owners, buyers, and property managers in some form or the other.
For instance, let’s say you are a developer who is planning to build a commercial building on barren land. You initially put a small stake in your project and hope to raise more funds through equity, bank debt, and pre-sales of the unit. However, it is likely possible that for some reason you are unable to raise funds for a project in which you have put your life savings. Tokenization, in this case, allows dividing your units into digital security tokens. These tokens can be sold on an online platform wherein international investors can buy a stake in your property. The digital tokens are enabled by smart contracts so the sale of each token is recorded on a blockchain ledger.
In case if you are an investor, tokenization helps you in diversifying your portfolio through making investments in multiple properties across the globe.
For home-owners, tokenized real estate enables selling a partial piece of their property to gain access to immediate liquidity.
While for buyers, tokenization helps in making an investment in real estate even with minimal amount.
It creates an environment for inclusive real estate such that each party can gain the optimum experience in the industry.
Benefits of Blockchain With Tokenized Real Estate
Apart from fractional ownership, increased liquidity, and a more inclusive environment, blockchain renders multiple benefits for tokenization in a real estate asset.
No Intermediaries – A blockchain platform would remove real estate agents and organizations from the equation. Investors and homeowners or developers can directly interact with each other on an international platform. This eliminates the high costs and longer time to settle a real estate transaction.
Secondary Markets – Blockchain technology would further enable a secondary market for buying and selling of real estate tokens, similar to stock market shares. The global markets will enable international participation and make it easier to gain access to the attractive returns of a real estate market.
Smart Contracts – Using smart contracts, a blockchain-enabled infrastructure, will aid in automation and transparent process of real estate transactions. Smart contracts and blockchain ledger facilitate ownership identity for each token as well as transactions on the token throughout its history.
Transparency – Blockchain further adds transparency to the entire process of real estate. This eliminates the possibility of fraud and corruption, which is extremely common in conventional real estate industry.
An Immutable Shared Ledger – Blockchain facilitates recording of data and documents on a ledger that will be shared among all the members of the network. This further reduces any misconceptions and promotes a healthy transfer of assets, information, and financial transactions.
The Challenges Ahead
As innovative as it sounds, tokenized real estate would need to overcome a number of challenges so as to become a tool for mass adoption.
The first and foremost would be to make investors and individuals aware of the concept of tokenizing a physical asset. Furthermore, users need to be familiar with the concepts of wallet, public keys, private keys, etc. This leap from a theoretical concept to actual practice would require a great deal of learning and understanding.
The second challenge for the tokenization to be massively adopted lies in regulatory hurdles. While countries have started developing a legal framework bound to cryptocurrency and blockchain, there yet lacks a proper framework at national and international levels.
It is undeniable that tokenization, as a concept, presents massive revolutionary change to the real estate markets and its operations. Similar to the internet, any new technology, takes considerable time for people to realize the value it presents.