Real estate tokenization will be the new investment revolution

Benefits of tokenization of real estate

Diversification of the investor group

Property tokenization allows property values to be divided into smaller parts using a system based on Blockchain technology. This allows owners and developers to offer assets with a much smaller denomination than in the traditional investment model. Thus, they extend their distribution to a much larger and more diverse group of investors.

Increase in liquidity

Real estate is a highly illiquid asset, which has so far increased the advantage of institutional investors over individuals. Tokens can be freely traded on dedicated platforms, where their price fluctuates depending on supply and demand. Liquidating an investment in a token worth a few dozen dollars is therefore much easier than selling a property worth several million. This is particularly important in the context of discounts for illiquid assets and liquidity premiums.

Easier price determination

Once tokenized, the value of a particular property on the secondary market is updated in real time based on order records. The paper-based systems currently used for this are much slower and full of asymmetries between the information provided by the parties involved.

Real estate tokenization — a new level of security

Blockchain provides the highest level of security among all digital solutions! Since tokens representing assets are protected by cryptographic encryption, in order to access them it is necessary to use private keys. And these are possessed only by token owners.

Real estate tokenization step by step

Tokenization of real estate can be divided into three stages:

1. Determination of the structure

The structure of the offering depends on a number of elements, including the type of asset, the jurisdiction and the applicable regulations. At this stage, issuers decide which property will be tokenized, whether it will be an existing or an emerging investment, and determine the legal status of the entire project (e.g. a real estate fund or a Special Purpose Vehicle with a single asset).

2. Choice of technology

At this stage a decision is made as to what blockchain protocol will be used for the project. Will it be a solution specially created for the purposes of the project? Or will one of the existing ones such as Ethereum or Hyperledger be used? The primary and secondary market for the tokens is then determined. Where should they be available for initial issuance? On which exchanges will investors trade them? An alternative is to create your own platform for issuing and trading tokens.

3. Creation and distribution of tokens

Once the technology decision is made and the transaction is structured, the next step is to launch the token and hand it over to investors.

Real estate tokenization — summary

By placing traditional assets inside an easily tradable token, digitised securities offer a range of entirely new benefits such as widening access to investment, lowering the barrier to entry and increasing the liquidity and transparency of transactions. These are improvements whose positive impact is immediately felt. Furthermore, implementing tokenization does not require turning the entire property market upside down. It is merely a significant improvement of the mechanisms already present there.

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