The usage of blockchain technology over the past several years has significantly changed the way the world looks. Several sectors of the economy, financial institutions, and businesses, including real estate, may experience significant changes as a result of blockchain-based solutions, experts predict.
One of the most secure investment options and one that guarantees the highest returns is real estate. The best investment and capital protection strategy, according to most people, is to purchase an apartment or commercial property. Unfortunately, many people may find this impossible to achieve without a large sum of money.
White label real estate tokenization will alter a number of market regulations including property rights, real estate investing, and capital raising. Below, you’ll find out why.
What is real estate tokenization?
A global phenomenon called the tokenization of the real estate sector is expanding the range of investment opportunities. The STG claims that as of February 2021, the market capitalization of tokenized real estate was $27,289,930.
Real estate tokenization is generating tokens on the Blockchain and associating them with existing or upcoming real estate properties. Tokens can be used to represent real estate interests and to raise money for development investments, opening the real estate market to a larger spectrum of investors and developers.
In other words, tokenization is a mechanism for a business to generate money through a crowd sale, which is effectively the same as crowdfunding but with tokens that are accessible on the Blockchain.
How does real estate tokenization work?
Similar to the crowdfunding process, real estate tokenization divides an asset into manageable portions using a smart contract, an automated program that resides on a blockchain. Any person who purchases or possesses a token also owns a portion of the property. They are entitled to both the underlying asset and the profits and losses that go along with it. The asset is simple to put money into over time. Due to the decentralised nature of the network used, everything is completely transparent.
Regardless of whether it is commercial, residential, or trophy real estate, it can be tokenized. It is possible to break up pricey commercial assets like malls and shopping centres into fractional pieces to make investments more accessible. Additionally, apartments in residential towers with multiple stories can be tokenized, allowing for rapid sales and purchases. Through tokenization, one might sell their trophy asset and raise money for projects at the same time. As a result, everything can be tokenized, including a digital share, a portion of a deed, an equity stake in a company, or ownership of the collateralized debt.
Benefits of real estate tokenization
With a minimum investment, anyone can take a stake in a property, share in the profits, and become a partial owner. In addition, secondary marketplaces exist where tokens can be bought and sold. A portion of the asset holdings of the property owner may also be sold by the issuance of tokens. Tokens also have the ability to be traded like stocks, and their value will change in accordance with the value of the underlying asset. With tokenization, you have immediate digital ownership and the freedom to sell at any time, which is an advantage over crowdfunding.
2. No geographic limits
Location-based obstacles are removed by property tokenization, as is the case with all other types of tokenization. Nothing hinders you from making a late-night property purchase on the other side of the globe. Construction of hotels, housing developments, or rental properties is something you may take part in and earn from at any time and any place.
3. Ease and speed of investment
This is made possible by blockchain technology, which gets rid of obstacles like bank and notary costs. As a result, the investor’s returns rise, and the organisation handling the investment can raise money more quickly, streamlining the entire process. Token investments offer greater freedoms than traditional investments because you can acquire a portion of real estate and start making money from it whenever you choose. The entire procedure is automated and doesn’t involve any formalities that are unneeded. The acquisition of a token grants the owner the right to the property, without requiring any modifications to the title or mortgage records.
4. Lower entry barrier and higher diversification
You can engage in a smaller shareholding structure, like distributed investment, as a result of the tokenization of assets. A capital investment of millions of dollars is no longer necessary. For individuals with less money, the entry barrier is lowered because it is simply only a few dollars to purchase a portion of some real estate. This also has something to do with diversifying your assets and investing plans. To diversify your investment portfolio, you can think of buying tokens in several properties as opposed to just one and investing in those properties as a whole. Diverse revenue streams are included in this instance of diversification.
5. No middlemen
STOs eliminate formal obstacles like notarial deeds or bank fees because they liquidate the secondary real estate market. Real estate blockchain reduces deposit costs, gets rid of middlemen like lawyers and brokers, and operates around the clock. The number of tokens that may be freely traded in compliance with the rules that follow has no upper limit.
6. Lower costs for investors
Tokenization has significantly lower expenses. Additionally, investors or developers need a mechanism to raise money for various initiatives. The stock market and bonds have grown more difficult, pricey, and time-consuming. Tokenization can provide a quicker and more affordable way to hold assets.
7. The highest level of security
Tokenization makes transactions secure and transparent. Tokenization uses the highest security standards based on two pillars: tokens and blockchain technology.
- The first pillar promotes security because investment is assigned digitally to an investor and remains so until it is refunded or sold to someone else.
- This level of security would not have been possible without the second pillar, which is the implementation of blockchain technology.
Since tokenization will be far more popular than previous forms of capitalization, it has been hailed as the future of investing. People will still require structures, both for residential and commercial purposes, despite this. In comparison to other investment options, real estate is also more secure. Adopting digitalization is required in order to take advantage of the benefits and possibilities it offers. Thus, it is anticipated that real estate tokenization will grow into a method that will be secure for investors and practical for developers. Promoters of tokenized real estate claim that by utilising this technology, investors will have access to new investment options. As a result, property developers won’t need to create a stock exchange or issue a lot of bonds to fund new and continuing projects.