Real Estate Tokenization: Principles and Benefits
Real Estate Tokenization
Real estate has always been considered a reliable investment. Indeed no matter what happens in the stock market. People will always need a space in which to live and work. At the same time real estate transactions have always been one of the most complex and expensive. Which had a negative impact on the liquidity of real estate.
In recent years real estate securitization has allowed to some extent to optimize transactions with this type of asset. At the same time tokenization which is a completely new method of making transactions. Makes it much easier to buy manage and sell real estate.
Tokenization involves the ownership of shares of real estate. Represented by virtual tokens that exist on the blockchain (which are security tokens). It uses the same technology as in the case of bitcoin and other initial offerings of tokens adapted to meet the requirements of securities laws.
Blockchain technology and tokenization provide numerous advantages over traditional methods of real estate transactions. The list of such benefits includes increased liquidity and transparency increased security and ease of management.
At the same time tokenization is a rather complicated process from a legal and technical point of view. Companies interested in launching real estate-backed virtual tokens are faced with a wide range of challenges. To consider and address when planning developing and launching real estate tokens.
What is real estate tokenization?
Tokenization is the process of creating a virtual token that represents a stake in real estate. Instead of formalizing the ownership of the legacy way on paper investors get the opportunity to conduct transactions digitally using tokens.
Tokenization is a fairly flexible tool. Tokens can represent a shareholding in real estate a share in an enterprise that owns real estate. A claim secured by real estate a right to a portion of income from real estate. Other types of rights.
Tokenization can cover any real estate including single-family houses, apartment buildings. Office buildings warehouse facilities retail space and any other objects.
While this may all sound like science fiction. There are already several tokenization mechanisms in place at the moment including.
- Ownership of real estate through equity participation in a specially created company.
- Shareholding in a real estate fund.
- Shareholding in a property.
- Investment and building loans.
- Creation of tokenized real estate investment funds.
Benefits of tokenization
Tokenization could revolutionize the real estate market. This approach provides token issuers and investors with significant advantages over existing investment vehicles and can attract a large number of investors to the market. As well as a number of other benefits listed below.
The main benefit of tokenization is increased liquidity.
Currently in general investments in real estate are illiquid. Low liquidity is the only negative aspect of investing in real estate. This parameter affects the price of the investment object and leads to an underestimation of the real value of assets.
Can at least partially compensate for the loss in real estate value due to low liquidity by simplifying the purchase and sale procedure. In this case even a small increase in the value of investment objects can lead to the creation of trillions of dollars of added value for token issuers and sellers. Real estate tokenization have a number of characteristics that allow you to implement this task.
- Global investment pool. Thanks to tokenization the pool of investors becomes truly global. Any natural person with sufficient capital and Internet access can take part in the purchase. Become the owner and sell real estate around the world.
- Lowering the threshold for entering the market. Thanks to the tokenization of real estate the concept of “sufficient capital” also takes on a different meaning. The code of the token may allow its division which will allow the issuer and subsequent owners of tokens to sell shares of such tokens for a fraction of the price. This opens up the market for small investors who were previously unable to trade and provides additional diversification opportunities for larger investors.
- Standardized transactions. Thanks to the blockchain technology that underpins tokenization, the sale and purchase of real estate tokens can be carried out using standardized smart contracts that do not require individual approval. In addition, the conditions of such smart contracts are executed automatically, which significantly reduces the cost of transactions.
Other Benefits of Tokenization
Real estate tokenization provides additional benefits for investors and issuers, among which.
- Blockchain is an open ledger. Every transaction using crypto currencies and virtual tokens is registered on the blockchain. This principle makes it impossible to double sell tokens, i.e. receiving funds from different buyers for the same token.
- Blockchain is based on distributed ledger technology. Which makes it impossible for any person group or organization to control the blockchain. In addition the blockchain uses advanced cryptography that provides enhanced security for users. Each user has their own key which provides access to blockchain assets. Such a key is a long combination of random characters that are almost impossible to guess even with the help of computer algorithms.
- This feature guarantees investors that after the transaction any falsifications become impossible.
- Simplified management. Tokenization also provides better governance for investors. Thanks to cooperation with crypto-exchanges, it becomes possible to track transactions in the secondary market.
- Tokenization strategy: legal and other aspects
- Companies interested in developing real estate tokens need to carefully analyze a range of legal and other aspects of token offerings. These issues are complex and require the participation of experienced lawyers and experts who work in real estate, securities, taxation and blockchain.