Real Estate is undoubtedly one of the most important sectors of the world economy. They contribute to balancing the economy, as well as for people to build their family’s wealth. Real estate plays a crucial role in the lives of many. Especially, the need for a place to stay is exponentially increasing due to the growing population. Hence, there are always investors looking to plow money into a real estate property. The global real estate market is worth almost $228 trillion. And the expansion is continuing.
Even though real estate is considered one of the most lucrative investments, it involves many stumbling blocks because of which investors face hardships. The challenges involve properties that are beyond the limits of affordability for a great number of people, the inability to split the property value, etc. This leads to the property becoming illiquid, which is a major crisis faced by investors in the real estate sector. Also, the real estate process is always long, tedious, and obscure, leading to many risks and difficulties. These factors altogether created an oxymoronic situation, where a real estate property when sold is extremely profitable but it is extremely difficult to have it sold. As a consequence, real estate investors started looking for an alternative solution.
The Emergence of Real Estate Tokenization
In the current modern era we are living in, technology is advancing on a daily basis. Every day, new tech developments bring in new approaches to solving old problems existing in major industries. One such ingenious technology is blockchain technology. Blockchain’s implementation into the real estate market is what is known as real estate tokenization. It is the process of converting real estate assets into digital tokens, that represent the shares of a single property or a portfolio of properties. In simple terms, real estate tokenization means to represent fractional ownership of a real estate property through a blockchain-based security token.
Tokenization has gained wide popularity among real estate investors over recent years and has significantly transformed the industry. Blockchain technology is truly changing the landscape of real estate investments, the way they operate, their development, and sales. Let’s take a brief look at how blockchain-based tokenization helps change the pace of the industry.
Workflow Of Real Estate Tokenization
- The required real estate property for tokenization is chosen and the analysis of jurisdictions and laws has proceeded.
- The legal architecture is evaluated and various options are provided to complete the evaluation. The owner of the real estate is provided with numerous options to tokenize, thus providing great flexibility in this process.
- Determining the blockchain network is a very vital process as it decides the architecture of the platform.
- This is the final stage as it creates a complete distribution plan and payment mode for the real estate property to be tokenized and also a transparent dashboard is created for real estate investors to see how much money they have raised over a certain period of time.
How Blockchain-based Tokenization Transforms Real Estate?
Tokenization enables fractional ownership of real estate properties. Fractionalization means, to divide the property value into different shares. And, a wide range of investors would own a particular ratio of shares according to the tokens they purchase. The investors who have purchased the shares will also be entitled to rights such as dividend shares, tradability, voting privileges, etc.
Another major benefit of fractionalization is the elimination of barriers to entry. As real estate properties are expensive, small-time investors find it difficult to afford them. By splitting the asset value into shares, tokenization paves way for such small-time investors to become owners of valuable property.
As we discussed earlier, liquidity has been a major concern for real estate investors. The term liquidity defines how quickly an asset can be converted into fiat money. Through the tokenization of real estate assets, the asset is open to a pool of investors on a global scale, which will unlock liquidity. It brings in more efficiency and speeds up the process of exchanging or converting the asset value into cash.
The blockchain-based real estate tokenized platforms are integrated with smart contracts, which helps with automated self-execution of transactions. Everything works based on programmed software which eliminates human interference, therefore more accuracy. Also, the process is quick and easy with no tedious paperwork required.
The traditional real estate business involves too many intermediaries and costs such as brokers, agents, etc, and their commissions. Blockchain-based tokenization removes the involvement of intermediaries. With the help of smart contracts, transactions are performed automatically in real-time, reducing costs and risks. The transactions are also more speedy, secure, efficient, and effective in a tokenized platform.
The traditional real estate business lacks transparency which leads to malpractices and many other issues affecting the investors. But, Blockchain-based real estate tokenization platforms work on a distributed network, which offers enhanced transparency to the users. Also, blockchain records every step of every transaction, data and time stamps, etc. Blockchain is immutable in nature, which means transactions once recorded, cannot be altered or interchanged. Altogether, tokenized real estate platforms bring in a safe, secure, seamless business environment for investors all around the world.
These are the major benefits tokenization brings in to real estate, and shifts the way real estate operates. If you are interested in tokenizing your real estate property, the wise thing to do would be to conduct in-depth research, choose a well-experienced company, and avail of their real estate tokenization platform. The following are the features you need to look into,
- Globalized KYC/AML
- Automated legal compliance
- Multi-ledger asset token development
- Non-fungible tokens
- Automated reporting to authorities
- High-end security integration
Beneficial Factors Involving Buyers And Sellers In Tokenization
- The transformation of digital tokens is done with the help of blockchain technology and it represents each and every token in real estate for the buyers and sellers.
- Since the tokens are being sold in the digital market, the investors get the opportunity to purchase and gain fractional ownership of the real estate property, and also the buyers and sellers can initiate transaction activities for the tokens as much as they want.
- Tokenization is very similar to cryptocurrency in all aspects. Just like crypto they cannot be changed or destroyed since they are based on the functionality of blockchain technology.
- A high volume of liquidity is generated to the buyers and sellers due to the involvement of enormous audiences because of the low entry fee.
Impact Of Real Estate Tokenization
Investing in real estate has always been a very tedious and complicated process with numerous obstacles. The money to buy real estate is the most popular obstacle that buyers are faced with. Money is also a problem in the digital platform also but here, it allows the buyer to own a fraction of the ownership of the property for less cost with the help of tokenization. The future could be carved according to the concept of tokenizing real estate, which would attract a hefty number of buyers. At the present time, it is hard to liquidate an illiquid asset with the central authorities involved. The tokenization concept is based on the power of blockchain technology. Thus, it removes the involvement of third-party authorities and liquidates properties completely.
Everything is striving towards the pathway of digitization. This evolution has unlocked many great beneficial factors for businesses that are aiming to conduct their business in the field of cryptocurrency. With everything that is happening with the digital space. It is no surprise that tokenizing something complicated as real estate is possible. The excellent rewards provided by this platform have been unlocking futuristic projects that could be on par with real estate tokenization. Thus, as long as the domain of cryptocurrency survives, the tokenization domain will grow exponentially.
Tokenization- The Future For Real Estate Investment
As mentioned earlier, tokenization brings in a multitude of benefits to real estate investors, and a wide range of global investors have started inclining towards tokenizing their properties to boost profits. The tokenized real estate market is expected to grow from 983 million USD to 2670 million USD By 2023, at a CAGR( Compound Annual Growth Rate) of 22.1% Also, the global real estate market is expected to hit a revenue of about $4.2 billion through tokenized investments by 2025.
Tokenized real estate is a trillion-dollar opportunity for real estate investors. It transforms the industry on the whole, by bringing in more global accessibility, efficiency, accuracy, security, and risk-free, hassle-free real estate business experience. From small-time investors to affluent, anyone can benefit from a real estate tokenization platform and acquire prolific benefits. There is no doubt that tokenization alongside blockchain technology is the future for the real estate industry. If you want to be a part of the revolution, collaborate with our team of highly qualified and experienced developers, and tokenize your real estate property today!