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.
Real-Estate Tokenization- A Wealth Churning Mine.
For a long time, the sure-shot method to follow for the exponential growth in the wealth is considered to be the investment in the real-estate sector of the society. Investors will be free of every and any burden regarding the investment and side-by-side watch the growth of the invested assets. Now, experts and investors have also boarded the train of tokenization as a way to improve the genuineness of the real estate investment world, opening the doors of infinite possibilities and opportunities to eager financiers and spurring up growth.
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.
Asset Tokenization
Asset tokenization refers to the process of converting the asset into easily divisible real-estate tokens that can be distributed and traded according to the situation speaks. Blockchain technology, the decentralization that has disrupted the traditional financial fiscal into a more public opinionated and transparent ecosystem, has now entered the most notorious aspect of the society, real estate. Before the introduction of blockchain, real estate was crawling with thievery, and opacity, and was generally ruled with an iron fist but due to the decentralization, real estate tokenization has represented the fair share in the ownership.
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?
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Fractional Ownership
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.
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Enhanced Liquidity
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.
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Automation
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.
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Cost-effective Operations
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.
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User Transparency
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
Benefits of Real Estate tokenization
- A go-to platform for trading
- Congregation of Traders
- Cost-cutting
- Partial Ownership
Including the real estate every other industry was trying to conduct their business with the same number of limited supplies without searching for new pedestals. The recent boom due to blockchain has introduced new opportunities to the trading platforms that make purchasing assets very simple. The real estate tokenization of the asset greatly aids the real estate market to get the resources into crowdfunding by taking the burden off of certain few ones by leveraging the collective purchasing power. This decentral market platform has become the go-to place to conduct business in the fairest manner possible.
The liquidity required to conduct the business or in this case, the traders to buy/sell the real estate tokens can be used to provide the liquidity to the platform. The presence of the traders on the platform will act as a supporting pillar for mustering up the confidence and have the peace in mind that there is a market for the real estate tokenization without any of the cons and farces.
The integration of the smart contracts into the assets is automatic to provide the maximum benefits to the trader by saving on the cost of transactions and attorneys. This blockchain ledger allows the traders to verify the seller’s identity, ownership of the asset token, and removal of the middlemen. Traders will save on escrow accounts, brokers, or title companies. All of these transactions can bulk up to tens of thousands of dollars and utilizing the decentral universe can be a major game-changer in cutting these costs on real estate tokenization.
This will be the most exciting opportunity for the forerunners having fractional ownership to innovate within the real estate industry. It is considered the most equitable innovation as fractionalizing the real estate tokenization will change the game forever as it will greatly help the users who do not have an adequate bank account to fully pay the property. Having partial ownership of the property among a group of investors will start the passive stream of income as soon as they rent the property out.
Although the introduction of real estate tokenization in real estate is fairly new, it steers clear the users and investors of legal hurdles, regulations, and document complications. Over time it will become insanely easy to integrate the blockchain in everyday transactions as well as corporate trading utilizing the securer infrastructure to benefit all.
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!