If there is one avenue of investment that has been considered eternally lucrative, but at the same time, not very liquid, it cannot be anything else other than real estate. Real estate has been the primary source of investment for a lot of investors who are intent on growing their wealth and can invest quite a lot of money in such capital intensive assets.
The real estate market is massive and has been steadily growing at about 15% year-on-year, and it does not show any signs of slowing down. There are thousands of accredited investors across the vast expanse of the United States, and real estate investments have largely remained confined to these accredited investors.
As much as real estate is extremely profitable, it is proportionally illiquid. The fact remains that not everyone can afford to invest in expensive real estate assets, and the magnitude of unaffordability only intensifies when it comes to commercial real estate.
Bringing in the blockchain
Blockchain, as we all know, is the distributed digital ledger technology that enables secure data storage and transfer. One of the manifestations of this new technology is asset tokenization. Tokenization is the process of breaking down large assets into small digitized representatives without compromising the actual and total value of the asset.
It might seem similar to securitization, but the process has its limits. The securitization process can only help in breaking down the asset, and it cannot work with a part of the asset. Tokenization, on the other hand, can not only represent the asset, but even voting rights in ownership, or shares in the debt, or automated payout of rental income.
All these digitized tokens exist on the blockchain. The blockchain not only enables secure storage but easy transfer. Selling your asset or your ownership in the asset would be as simple as a few clicks.
Advantages of tokenization
Commercial real estate tokenization has become so much of a fad that tokenized real estate enablers received more than $20 billion in funding until 2018. Blockchain-based tokenization brings with it a lot of advantages.
One of the most prominent advantages is brought about by blockchain, and the act of tokenization is liquidity. Assets that were once considered most illiquid like commercial real estate can be broken down into smaller representatives. It does not decrease the value of the asset, but at the same time, it also removes the entry barriers for investors. Since the entire as it is more saleable now, it increases the liquidity.
Earlier, investing in such high-value assets was just a luxury that a few affluent could afford. Today, because of these tokens, a tokenized real estate property can be purchased by a lot of retail investors. Passively, it also helps institutional and high-level investors because they do not have to put all their eggs in a single basket-they can also diversify their portfolio.
Real estate tokens are not just representatives but also self-sustained programs. They can be programmed to execute certain orders like payouts based on thresholds. The payout is made directly to the token holder. Since there are no intermediaries like banks involved, the process can be considered highly cost-effective as all the costs associated with middlemen are eliminated.
Since the tokens exist on the blockchain, they can be traded worldwide. They do not have any Time constraints or geographical barriers. It has to be taken into consideration that the sale and purchase of real estate tokens should be within the legal permissions of the purchasers’ jurisdiction.
Real estate, until the tokenization phenomenon, was a ‘take it or leave it’ offer. Tokenization has now enabled fractional ownership-it comes in as a blessed both for the asset owner and the investor. The owner who is in dire need for money does not have to sell the entire asset. They can tokenize a part of their real estate property and retain ownership of the rest.
Real estate tokens are offered either in a security token offering (STO) or asset token offering (ATO) or digitized securities offering (DSO) or tokenized asset offering (TAO). In most cases, these offerings use a special purpose vehicle (SPV). All these offerings are classified as a security, and as a consequence, they fall under the purview of the securities and exchange commission (SEC). This ensures that the interests of the investors are protected. Real estate tokens are viewed as a fine line of confluence between traditional investments and new technology like blockchain.
Successful real estate tokenization projects
Tokenized real estate is no longer a fad or just confined to paper. There have been instances of real estate token sales being successful. A luxury condo in Manhattan located at the East 13th Street in the East Village has successfully sold tokens worth $30 million on the blockchain. The building occupied by WeWork – now defunct – in downtown Miami, Florida is open to be sold using blockchain tokens. The building is valued at a staggering $65.5 million. Even some resorts have sought funds through real estate tokens and have been successful in raising the required capital in less than an hour.
It cannot be denied that blockchain is revolutionizing almost every sphere of our lives, and real estate is not an exception to this transformation. With the world shrinking smaller with the reach of technology, and the landscape of real estate becoming global, blockchain-based tokenization of real estate cannot be avoided.
As a business, you could surely consider creating a real estate tokenization platform. It is bound to be one of the most lucrative businesses in the future. If you would like to capitalize on this small wave that is all set to be a tsunami, all you need to do is get in touch with blockchain app development companies who specialize in white label whiskey-based real estate tokenization platforms. They will take care to create the platform and customize it according to your requirement, so you can make your business thrive by facilitating asset tokenization.
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