The Tokenization of Real Estate – How Does it Work?

More and more people tend to talk about tokens. The subject is frequently taken up also in the context of real estate, as tokenization became a good source of money for those who know how to invest. It is said that the real estate sector makes up about 40 per cent of the digital securities market. How does it work?

The emerging trend of real estate tokenization

The real estate tokenization is the process of a great potential to revolutionize the real estate investment market. Although it might arouse a distrust among those who are beginners with the idea of tokens and tokenization platform, the transactions – both for issuers and investors – are perfectly safe. Immaterial traits of tokens convert the value of real estate into a digital form and are stored on a blockchain.

The subject of interest of investors

Those who follow the trends of financial technology sector, should carefully monitor news coming from the United States. It is a home for many solutions that run through other continents. The real estate crowdfunding is an excellent example of the idea born in the US. Real estate tokenization is another example of a trend from across the ocean that has spread and became the subject of interest of investors from Asia and Europe.

Tokenization of real property

Real estate tokens are non-interchangeable units of data that are safely stored on a blockchain. Those data create a decentralized database with a digital ledger, where all transactions are instantaneously synchronized and generally accessible to the public. Tokens are available both for investor and issuers on different tokenization platforms.

Real estate tokens are the type of NFTs (non-fungible tokens) and can be sold and traded. A single token can represent the ownership of the entire or of a part of the real property, but it can also stand for a debt secured by real property, as well as for the right to share profits that are generated by the estate.

Tokenization

Benefits of real estate tokenization

Why the tokenization of real estate is the subject of interest of investors? Because it’s a cheap, easy and flexible way of a decentralized sale. Through the purchase of tokens on the tokenization platform, the buyer becomes a co-owner of a part of the real property. It also reflects the right to a proportional equivalent of profits, as well as the right to make decisions concerning the following real estate.

There are numerous benefits of real estate tokenization. Low barrier of entry is the key issue for many investors. Real estate tokens are available in fractional portions, which creates a great opportunity to make investments for small-scale investors. Low minimum can be leveraged to benefit from the potential high returns.

Liquidity is another important benefit from real property tokenization. Tokens can be easily and safely transferred, which allows the investors to diversify their portfolios. Moreover, those who issue tokens are given the access to a wider pool of potential investors than in the traditional real estate market.

Lower transactional costs

Within the blockchain technology, all transactions are transparent for people involved. The whole process is automated, which enables to complete the transactions faster and at a lower cost. There’s no need to say that such transfer generates higher returns for the investors. Additional benefits are improved accessibility and real time capitalization.

Possible threat and problems

The legislation of economically developed countries (also including the USA and Europe) doesn’t fully follow the process of tokenization. A great use of potential of tokenization will be entirely possible after the use of blockchain technology in land registers, so it can reflect up-to-date information that concerns the state of possession of the tokens.

What is more, the concept of tokenization also assumes that the token owner is financially responsible for the real estate taxes, fixings and insurance premium. Such automation of costs is also a challenge for legislation. At the moment, tokenization is a form of investment that is not entirely regulated. When both legal and technological solutions will be provided, tokenization of real estates will probably become the most popular way of investing online.

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