Tokenization is converting the value of a tangible or intangible object into a blockchain-linked token. As a result, tokenization can convert almost any asset, real or virtual, into a digital token that can be transferred, owned, and stored digitally without a centralized third party or intermediary.
Are you hearing the Real Estate Tokenization for the very first time? Well, that begs the question:
What is Real Estate Tokenization?
Creating a virtual token to represent ownership of a real estate interest is known as tokenization. Rather than dealing with common real estate interests using outdated paper documents, buyers can now engage in digital transactions using tokens.
A token could represent ownership of the underlying real asset, an equity interest in a legal entity that owns the asset, an interest in a debt secured by the asset, a right to share in profits arising from the asset’s use, and more.
What Does the ‘Value’ mean?
Tokenization has the potential to transform the global real estate market. It has several significant advantages over existing investment options for issuers and investors, and it has the potential to attract many new investors to the market.
#1 Increased Liquidity
The real estate sector, for so long, has been a shelter for illiquid assets, which requires time for monetization. By making real estate investments easier to buy and sell, tokenization has the potential to recapture at least some of the value lost due to the illiquidity discount. Even a tenth-of-a-percentage-point increase in the sales price of such investments could result in trillions of dollars in additional value for issuers and resellers.
#2 Investment Opportunities
Like traditional real-estate investments, real estate tokenization could bring in investment opportunities. Harnessing the power of blockchain technology could land long-term investments. Governing bodies can also embrace real estate tokenization, as Oman did recently. The advisory board believed that converting real-estate properties into blockchain-linked tokens could persuade local and foreign investments in the country.
#3 Immutable Proof-of-Ownership
Traditional real estate investors also face the problem of proving ownership. Various legal documents that show the sale of the asset and the new investor’s ownership rights are usually used to demonstrate legal ownership. Tokenization, like cryptocurrencies, is based on a distributed ledger system. A distributed ledger is a database that can be accessed by multiple people and is shared and synchronized across multiple sites.
What Does Real Estate Tokenization Platform encompass?
A real estate tokenization platform facilitates the conversion of real-estate properties into tokens.
That begs the question: is the real estate tokenization platform just that?
Not really!
It contains;
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A Real-estate Metaverse
A Metaverse-powered Real estate tokenization platform facilitates the real-time experience of virtual properties. A real-estate Metaverse, like Decentraland, offers monetization opportunities via virtual plots.
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A Secondary Marketplace
The marketplace facilitates the real-time trading of asset-backed tokens, drawing benefits to the token owners. A marketplace for asset-backed tokens (security tokens), such as real estate and other real, physical assets, to be traded. The exchange improves the security tokens’ tradability and liquidity.
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Asset Management
Property management, building operations and maintenance, facilities management, lease administration, property accounting and financial reporting, contract management, and construction management are all services that come under asset management.
How Does Real Estate Tokenization Happen?
Real estate tokenization is a modern extension of traditional fractional real estate ownership. It’s a crowd-funding strategy that divides the value of a real estate investment into smaller chunks to get around most of the investment roadblocks.
Real estate Tokenization includes three key phases:
#1 Deal Structuring
To securitize and create an investment vehicle, digitization of real estate necessitates a legal wrapper around the individual property(ies). One must determine asset type (to tokenize), legal formalities, investor types, etc. You can also offer multiple tokens that represent different types of investments. For example, you could create a token representing preferred equity and another representing common equity in a property with a liquidation preference.
#2 Technology Selection
You must make a few technology decisions once the legal structure for the property has been established and the deal structure has begun. Compared to the other phases of the process, this one is relatively simple and quick.
- Choose the Blockchain network to accommodate your real estate token.
- Determine whether you need any API integration with your real estate tokenization platform.
- Decide on how your marketplace will look like: its functionalities, check-out page, trading mechanism, and more.
#3 Token Creation
Here comes the real action – the token creation process. You can easily accept different payment methods now that you’re offering real estate as a digital token for investment. You can either stick with traditional fiat currencies or allow investors to buy digitized real estate with cryptocurrencies or stablecoins.
Can I Perceive it as a Business Model?
Of course, you can!
Property tokenization is also one of the most promising use cases of blockchain technology because it is a more valuable asset class than stocks and bonds combined. Investors can diversify their portfolios more easily with fractionalized ownership of real estate assets.
A new report predicts that the global real estate tokenization market could become a $1.4-trillion market a few years from now. With the market trajectory heading for potentially positive growth, I guess starting your business around the sector shall pay dividends.
Conclusion
Tokenization can change the way people around the world invest in real estate. However, blockchain developers and their professional advisers will need to put a lot of thought and planning into realizing that potential. Tokenization is beset by a tangle of legal and practical issues, any one of which could determine whether it succeeds or fails.
Do you want to build a real estate tokenization platform? Look out for your technology partner who excels at it.
