How does Real Estate Tokenization work?

How does Real Estate Tokenization work?
August 25, 2022

$800 billion US dollars! Can you imagine it is the money invested on global commercial real estate in 2022. Digitization of real estate makes managing property simpler while providing more transparency. Tokenization of real estate is gaining traction in the last few fears. This is because investors can benefit from regular cash flow, low maintenance costs, rent payments and better liquidity. Real estate tokenization is slowly changing the real estate industry. 

Real estate tokenization

Real estate tokenization is converting real estate assets into digital tokens. These digital tokens can be acquired by investors from an online marketplace to get fractional ownership of the property.

Investors can also get rewarded with rental payments from the fragment they own. This payment is usually in the platform’s native currency. These assets can be shares of a company that is owning that real estate. Therefore, property owners here can transact digitally with tokens, instead of traditional paper documentation.

Types of real estate tokenization

Commercial Tokenization: Tokenizing commercial properties with legally compliant protocols.

Residential Tokenization: Fractional tokenization for residential real estate projects for investors, asset owners, and developers.

Trophy tokenization: This is the process of tokenizing iconic and famous buildings in prime locations. These properties usually have a strong real estate value.

Benefits of real estate tokenization

Some of the benefits of real estate tokenization are:

Affordable investments: Investors need not purchase the entire property. The investments depend on the investor’s needs. Investors can purchase tokens based on their requirements and financial situation.  

Low maintenance cost: You may have to spend to manage and refurbish real estate properties. But with the tokenization of properties, the burden of managing properties is passed onto the platform. 

Passive income: You can enjoy passive income from the rent without having to spend chunks of cash for maintaining and refurbishing it.

Equity: With some platforms, you can tokenize your properties to raise capital for your business venture. You can also sell equities, raise funds, and purchase another property to build your portfolio.

Transparency: Tokens are stored on a distributed ledger which not only acts as proof of ownership but also improves transparency in the real estate industry. Since tokenization is backed by blockchain, it has high-end security features.

Low transaction costs: Tokenization has low transaction costs since it uses blockchain for exchanging tokens.

Other important advantages of real estate tokenization are KYC regulations, land ownerships as NFTs, quick peer-to-peer transactions, ability of small investors to enter the market, and the elimination of third parties.

How is real estate tokenized?

1. Deal finalizing

2. Choosing the appropriate technology

3. Digitization

4. Token creation and distribution

5. Future of real estate tokenization

Tokenization is expected to yield nearly $4.2 billion in the next 5 years. Tokenization comes with more flexibility and security when compared to the traditional real estate model. There are many points that might favor a positive future for tokenization in the real estate industry.

  • Tokenization of real estate enhances the traditional real estate market by providing more transparency and security.
  • It opens up opportunities for new real estate ventures as real estate tokens can be swapped in real-time.
  • Tokenization of real estate is competent with other fundraising mechanisms for business projects.

The world is already rapidly moving toward blockchains due to their features like security and flexibility in using digital assets. In the same way, blockchains have opened up new opportunities in the real estate industry by enabling property owners to tokenize their properties. If you are looking to tokenize your property, you can consult a blockchain firm with expertise in real estate tokenization and provide support with relevant legal processes.

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