Tokenized Real Estate-Why Should It Interest Investors?

For years, the real estate market has worked in a specific way with its set of defined principles. However, in recent times, new technological innovations have emerged that have the potential to change the landscape of the real estate market.rnOne of the emerging trends that have captured the attention of investors, agents, property managers, and stakeholders of the market is asset tokenization. The applications of blockchain technology, shown to light by bitcoin, have far-reaching capabilities in the real estate market as well.

Tokenized Real Estate: What is Asset Tokenization?

Asset tokenization, for real-estate, is a method of dividing a property into shares and raising equivalent tokens on a blockchain platform. The token then becomes a digital equivalent to the physical real estate property share. Unlike market cryptocurrencies, the token gains its value from the underlying asset; in our case the physical property on-ground. The tokens are therefore called security tokens and are raised on a blockchain platform. These security tokens, representing real estate property shares, can then be sold or traded on the online markets. Tokenized real estate allows property owners to raise funds and facilitates investors for making selective investments. It creates a win-win situation for each participant by facilitating inclusion into a real estate market, which has, until now, remained a niche.

How Does Real Estate Tokenization Work?

Blockchain technology provides a decentralized platform, wherein each piece of data is recorded and stored. Hence, the tokens and the process that each token undergoes throughout its lifetime gets recorded on this digital ledger.rnSo, how does it work? Well, let’s say you want to tokenize a real estate property of 1000 sq feet which is worth $500,000. Your first start dividing this property equivalently into parts. So, let’s say, that you divide it into 1000 shares, each one representing 1 square foot of the said property. Further, you raise equivalent security tokens representing one share on the blockchain platform. Hence, each token will be worth $500. This allows an owner to sell partial shares of the property instead of the conventional way of selling it as a whole.

Benefits of Asset Tokenization

The process of turning a physical property with its digital representative can serve several benefits to the investors, property owners, buyers, and the real estate market as a whole.

Inclusive Access

As discussed before, the conventional real estate market is pretty specific as it requires a bulk chunk of investments in almost any part across the globe. This has created barriers to entry into the market as many people can’t afford to make huge investments. Tokenizing a property can give inclusive access by allowing people to buy shares of a property and gain returns on smaller investments. It gives better access by allowing a wider audience to participate.

Increased Liquidity

The wider adoption also facilitates increased liquidity into a rather illiquid market. Through the model of fractional ownership, the property owners can sell shares as low as $1000. Moreover, since the tokens are digitally represented, it also eradicates geographical boundaries opening ways for new investments. Investors can make more selective investments and can further gain high returns.

Frictionless Transfer

The real estate property transfer is a complicated process involving multiple parties and documentation. This makes it extremely lengthy, costly, and time-consuming. Blockchain facilitated smart contracts, provide a way for frictionless transfers of property shares or tokens. Additionally, each process of documentation is recorded on a ledger, which cannot be deleted or manipulated. The smart contracts also remove the need for multiple intermediaries thus creating a smooth process for property buyers and sellers.

Open Market Trading

The security tokens are much like stock market shares. You can trade them on a global network and gain profits from the returns. However, unlike the stock market which is open during specific hours of the day, such markets are open 24/7 for trading. Moreover, trading tokens would not require any additional transaction fees as there are no intermediaries. The tokens are instantly traded between a buyer and a seller. This opens up new business investment models that are not restricted.

Real-Time Pricing and Settlement

Our conventional real estate market has asymmetric pricing information with differing sources. In some parts of the globe, paper-based records have also led to the creation of a black market.rnDigital markets based on blockchain would enable a single source reflecting real-time pricing. This also ensures transparency in the real estate process, thus restricting loopholes for illicit activities.

Automated Processing and Governance

Smart contracts can ensure automated processing along with the need to eliminate constant human monitoring. This further reduces the need for governance in each process and lowers the administrative costs. Furthermore, buyers and sellers can successfully interact and deal with each other without the need for any trusted intermediary as smart contracts become the supporting infrastructure.

Proof of Ownership

Blockchain provides an immutable ledger that will provide proof of ownership for any particular property. The history and documents for each piece of land will be stored on this ledger. This benefits investors or buyers, who can verify each piece of information. Moreover, confirm is the property is not facing any dispute in ownership.

A Tokenized Future

The innovation era suggests that the modern world financial and physical assets will have an equivalent digital representative to it. Specifically, for the real estate market, asset tokenization has presented a boon that could reform it entirely. Moreover, it adds inclusiveness and innovation to a market that has been rather conventional for a long time.