As each day goes by we see more and more developments happening in the Cryptocurrency marketplace. We see its horizontal and vertical integration with numerous services and products around us.
Each of these developments adds a new dimension to the vast world of cryptocurrency.
In this article, we will be discussing one such integration that has been happening between the market of real estate and cryptocurrency.
What is Tokenization?
The process of creating a digital blueprint of a real asset is called tokenization. These blueprints are seen to be digital representations of the real assets they are based on. Real estate tokenization works based on the same principles. Let us look at how.
What is Real Estate Tokenization?
The process of converting real estate assets into digital tokens is known as “Real estate tokenization.” The tokens are then enrolled in a blockchain network. Each token that is generated this way represents a fractional value of the real asset.
This allows a person to have a digital blueprint of a real asset without spending the full amount to buy the whole asset. This allows for partial ownership and an increase in liquidity for the token while trading it on digital asset exchanges.
Let us look at what kinds of real estate tokens exist in the market.
What are the kinds of real estate tokens that exist in the market?
There are currently two kinds of real estate tokens that exist in the market they are:
Equity tokens
Equity tokens give their owners a share in the ownership rights of a property. Let us say that a person has 20% of the tokens issued for a particular property he is seen as the owner of 20% of that property. These kinds of tokens help you get joint ownership over a piece of real estate.
Debt Tokens
Debt tokens are issued basing the debt instruments on a property. Debt instruments such as rent or mortgage are two of the common basis for issuing debt tokens. The rent or mortgage charged for a property is tokenized in this case.
These tokenized debt instruments are then received through the token buyers. Debt tokenization for real estate automates rent payments or mortgage payments for the property.
The amount of payment each token holder receives is predetermined through smart contracts during the initial token purchase.
Let us look at how real estate tokenization helps the cryptocurrency and real estate Market.
advantages of Real Estate Tokenization
Real estate tokenization had the following advantages on the Cryptocurrency Market:
Diversifying into the Real estate market
Tokenization helps to introduce cryptocurrency investors into the real estate market. This helps in widening the reach of the cryptocurrency market and helps create more digital assets.
More asset-based tokens
We can expect to see more circulation of tokens whose values are based on a tangible asset. This will help to create a more stable cryptocurrency market.
Newer investment opportunities
Real estates present cryptocurrency investors with a new field of investment that can help them discover new opportunities and more ways to make gains.
Real estate tokenization has been advantageous to the real estate market for the following reasons:
Better leverage options
Real estate tokenization presents a better deal on property leverage than traditional financial institutions. Tokenization can be a great easy-to-secure investment for a variety of purposes.
A new way to raise funds
Real estate tokenization puts forward a new method to raise funds for a property without giving up too much of the rights on the property.
Access to a wider pool of investors
Tokenization opens up access to potential investors situated all across the world. This will help a property owner get better and faster deals for their property.
Advertisement for the property
A property after being tokenized will exist in the crypto investment circle as an investment opportunity. This will help to provide advertisements for the property for anyone looking for a real estate deal.
Apart from these Real Estate Tokenization has the following benefits in general:
Higher Liquidity
Tokenized assets can be traded easily in exchanges like any other asset. The token can be sold in the secondary market at any time. The process will help you achieve instant liquidity through the easy trading process.
Less Paperwork
The selling or buying process for tokenized assets requires no paperwork filling. The process can be carried out digitally and the evidence is stored in the blockchain.
Fast Trading
Having access to a market that is accessible at all times will help facilitate faster transactions. This means a trade can be carried out without delay in completing the transaction.
More Transparency
Because the trade between parties happens through a public blockchain it is much easier to maintain transparency. This helps to determine the validity of a transaction and gives more overview of transaction details.
More Security
Blockchain technology provides security for all the tokenized real estate transactions in their network. This ensures that there are no chances for fraud or mistakes in transaction processing.
Low fund requirement
Anyone with limited funds can invest in part of real estate without investing enormous funds.
These advantages make real estate tokenization one of the most promising developments in the digital asset market.
Let us now look at some of the disadvantages of real estate tokenization
disadvantages of real estate tokenization
Real estate tokenization has the following disadvantages:
No real ownership of the asset
The tokenized digital asset does not give its buyer any real ownership over the real asset.
Uncertain Regulations
Tokenized real estate assets are still under study by the regulatory authorities. This means we cannot be sure how the regulatory framework for such assets will be set up in the future.
Vulnerable to speculations
The real value of an asset can be speculated upon by investors. The property value could thus face an increase or a decrease based on market opinions.
Fragmented asset
A single property’s token can be spread across multiple blockchain networks. This could create confusion and chaos.
Now that we have looked at the advantages and disadvantages of real estate tokenization let us now look at how you can tokenize a real estate property.
How to tokenize a real estate property?
The process of tokenizing a real estate property is not as hard as it may sound. But keep in mind that you are better off letting someone with a bit of experience in such things do the work for you.
These are the steps involved in tokenizing a real estate asset:
- Step 1
- Select the asset: The first step to tokenization is to determine the asset that you want to tokenize. The asset could be a house, a car, or even a portion of your land.
Determine the price of your asset and fix the rights that you want to issue to the shareholders of your asset.
- Step 2
- Setting up a campaign: To tokenize your asset you must first launch an STO campaign. Security token offering campaigns or STO campaigns are used to digitize a property and convert it into security tokens. These campaigns can be launched by real estate companies on any blockchain platform.
- Step 3
- Register in an STO platform: Security Token offering is the process of enlisting your tokenized asset into the blockchain. Choose any of the reliable STO platforms that offer services to list your assets.
- Step 4
- Wait for offers: Once your digitized property is put up in the STO platform clients who have completed their KYC verification process can now buy them from the platform.
These are the only steps that an individual has to take to tokenize their real estate asset.
Let us now look at some of the most successful real estate tokenized processes that have been sold in the market.
most successful real estate tokenization companies
Here is the list of the most successful real Estate Tokenization companies and famous tokenized real estate sold by them.
Templum Markets
Templum Markets sold the St.Regis Aspen Resort after its tokenization. The investors in the product were given partial ownership of the tokenized resort.
AnnA Villa
It is one of the first pieces of tokenized real estate property sold in France. The property was valued at 6.5 million euros at the time of tokenization.
The property was divided into 10 Ethereum-based tokens which were further divided into 100 tokens each valued at 6.5 euros.
Smartlands
This tokenization company sold a student accommodation block in Nottingham, U.K. This was one of the first tokenized sales in the U.K. at the time. This particular property was sold for close to 12.06 million pounds.
They set up the project to enhance the investment experience for all the parties involved when buying tokenized real estate properties.
These were a few of the examples of tokenization projects that took place in recent years.
Let us now look at what we can conclude about real estate tokenization from all the details we have gone through in the sections above.
Final Thoughts
Real Estate tokenization seems to be quite a promising expansion pathway for the world of digital assets. It perfectly integrates two of the most valued sectors into one and creates a new method to carry out transactions.
The new venture into Real estate by the digital asset community is something that we can see open up a lot of possibilities and endless opportunities.
