The current global real estate industry is grappling with a lot of issues like lack of transparency, inadequate access, and insufficient liquidity. Real estate tokenization is a viable alternative where small investors can easily invest in tradable tokens and exchange them in the leading secondary markets. They also get the benefits of fractional ownership, regular cash flow, voting rights to take part in the governance of the property, and dividends.
Understanding the Meaning of Tokenized Real Estate Assets
It refers to the conversion of a Real estate property into a digital token on an existing blockchain network. The token can be purchased with ease by both retail and institutional investors. Each token represents a certain share of the property.
What Are the Various Advantages Offered by Tokenizing Real Estate?
- The barriers to entry become low for investors as there is no minimum threshold regarding capital investment.
- Property developers get access to an efficient method for fundraising and establishing new construction projects.
- Liquidity is boosted for illiquid assets enabling its quick purchase and sale by potential investors.
- By not depending on intermediaries like brokers, agents, banks, and lawyers, robust smart contracts ensure a reduction in operational expenses and lead to greater efficiency.
- A high level of transparency is maintained by the distributed ledger that provides all the latest information on a real-time basis to the participants.
- Rich investors can efficiently diversify their portfolio by putting their money in multiple properties located around the globe.
- A variety of commercial, residential, and industrial properties can be tokenized efficiently.
- The rent collected from tenants is transferred directly to the digital wallet either in the leading cryptocurrencies or stablecoins.
The Step by Step Process to Follow for Buying Real Estate-Backed Tokens
- A compatible digital wallet needs to be set up for storing the digital tokens safely.
- Register yourself on a well-known real estate investment platform that has a huge list of properties that are being tokenized.
- Some of the popular Real estate tokenization platforms are Cocoricos, Atlant, Liquefy, Propellr, Fluidity, Harbor, and RealT.
- Choose the property that suits your financial situation, investment goals, and risk preferences.
- Purchase the number of real estate tokens being offered and pay the seller of the property.
- Secure your tokens in the digital wallet through security measures like end-to-end encryption and multi-factor authentication.
The Multi-Faceted Role of Tokenized Real Estate
- Real estate-backed tokens help in improving the pace of the property search process. All the buyers and sellers will be thoroughly verified by a real estate token investment platform leading to no chance of fraud or spread of misinformation.
- Blockchain technology helps in managing the properties in a better way. Alerts will be issued to the property managers regarding maintenance and repair works. All the documents and data will be streamlined regarding ownership rights making the whole process easy and simple.
- The tokens act as proof of ownership for the buyers. This prevents any possibility of forgery, cheating, and document manipulation.
- It gives more convenience in property investment as there is neither a minimum nor a maximum limit. Hence, it provides a lot of financial incentives to the buyers and sellers.
- There is no need to depend on any middlemen anymore as online tokenization platforms contain all the information required about the history of the property, ownership details, documentation, legal regulations. This ensures more transparency and confidence while purchasing a property.
The Main Factors to Consider While Tokenizing Real Estate
- The representation of the token in the form of ownership rights, rental income rights, and usage rights.
- Establishing a Special Purpose Vehicle (SPV) for issuing the tokens to potential investors in the market.
- Complying with the regulations issued by securities laws and tax laws.
- The role of smart contracts in different processes like rental collection and dividend payout.
- Obtaining a license from the concerned authority for issuing the security tokens to the buyers of properties.
- Undertaking KYC/AML verification of all the investors to create an authentic user base.
- Deciding the voting powers for the governance of the properties.
- Creating the right technical infrastructure for trading, settlement, and custody of the digital tokens.
- Developing an investor dashboard to keep the investors informed about the progress made in the process of Tokenization.
- Partnering with an established secondary market for the quick trading of tokens.
What Is the Current Status of Real Estate Tokenization?
Many nations are passing laws related to security tokens recently. Investors are becoming more aware now as roadshows and events are being held by property developers. More implementation of blockchain technology in day to day business operations will accelerate investment in Real estate tokenization platforms. The business opportunities in property tokenization are global and are not limited by any geographical barriers.
It reforms the whole industry by making the process short, more efficient, and removing the role of intermediaries. Though Real estate investment trusts (REITs) have been existing for a long time in the market, they have a high entry cost and have not been adopted well by the mass market. Tokenization will offer properties for sale at an affordable price with more yield through regular returns. This will shape the future of the real estate sector and it will undergo rapid transformation.