Blockchain technology has continued to transform different sectors of the economy like the financial sector and the real estate industry is not being left behind. The combination of blockchain technology and real estate through tokenization is poised to bring a tremendous impact on the real estate industry. Although the real estate industry is one of the safest investment vehicles, the huge capital requirement that investors need to part with to own residential or commercial properties has always been a great deterrent. Luckily, blockchain technology now makes it easy for investors to tokenize real estate properties.
What is real estate tokenization?
Real estate tokenization refers to the process of fragmenting the value of a huge real estate asset into several smaller digital tokens and then selling them in an online marketplace. Real estate investors who buy these digital tokens are presumed to own a portion of the said real estate asset which can range from physical real estate property to shares in a company that owns a real estate property or a real estate investment fund.
These digital tokens are preserved in blockchain technology and many real estate companies are now integrating them into their transactions and business models. Real estate tokenization works just like crowdfunding only that it uses digital tokens on blockchain technology to raise capital from crowd sales. Investors can purchase digital tokens in an open online marketplace thus, eliminating the need to go through expensive brokers or intermediaries as it’s the case in the stock market.
What are the benefits of real estate tokenization?
Real estate tokenization helps to transform the illiquid real estate investment into digital tokens. Token holders can sell their digital tokens anytime on the online marketplace without having to physically meet token buyers with just the click of a button.
- Fractional ownership
Tokenization of real estate makes investing in real estate possible for even beginners with small starting capital. With tokenization, investors are no longer required to purchase the whole real estate asset. Any investor can invest a particular amount and become a rightful fractional owner of a specific real estate asset.
- No location limits
Real estate tokenization through blockchain technology makes it easier for real estate investors to buy digital tokens from anywhere in the world. The online marketplace where the digital tokens are traded is borderless. When location limitation is eliminated, it makes the digital real estate investment more appealing to many investors.
- Lower transaction costs
The use of blockchain technology helps in optimizing the transaction process. When the process is streamlined, it becomes easier and transaction costs are greatly reduced. Investors can get much freedom when it comes to buying and selling digital tokens and also diversifying their real estate investments. All the traditional real estate transaction steps are automated using blockchain technology through the “smart-contract” feature.
- High level of transparency
Transparency and security are very important considerations that investors check before they can venture into any investment opportunity. Real estate tokenization makes the entire real estate transaction secure and transparent. Blockchain technology guarantees the highest security standards. Every transaction is digitally recorded and secured to ensure there cannot be any reversal or manipulation.
The tokenization concept powered by blockchain technology will definitely have a big impact on real estate now and in the future. With the elimination of high entry requirements for prospective investors and illiquidity, tokenization is democratizing the real estate industry. With the continuous use of blockchain and tokenization in the real estate sector, we can expect that the industry will continue attracting more investors.