Explaining the Game Changing Role Played by Real Estate Tokenization
Technology 182

Explaining the Game Changing Role Played by Real Estate Tokenization

Explaining the Game Changing Role Played by Real Estate Tokenization

Real Estate tokenization is the latest trend that has the potential to disrupt any market. It refers to the division of a property into small digital tokens offering a viable opportunity for different classes of investors. The token can represent a stake in ownership, provide voting rights, holding equity, and regular access to cash flows arising from the asset. While Real Estate is generally considered as an expensive asset that is affordable only to the privileged classes, tokenization changes the typical way by which settlements occur in the industry. 

Some of the Main Challenges to Real Estate Tokenization Are 

  • There are a lot of intermediaries involved in settling a Real Estate transaction such as property agents and brokers who might oppose tokenization.
  • Not many investors and developers are aware of tokenization as they are used to handling assets by filling physical forms and documents. 
  • With many countries tightening their regulations to control the growth of cryptocurrency, an absence of an international framework for Real Estate tokenization can affect the clinching of global deals. 
  • Since tokenization uses the power of technology, it could be vulnerable to hackers who can manipulate the accounts of buyers and investors 
  • Majority of real estate transactions are backed by institutions and exchanges that provide superior custody solutions. Since tokenization operates on a trustless mechanism, it is difficult for it to make inroads into the market. 
  • The legality of tokens can be challenged by regulatory authorities under different provisions of securities laws laid down by them. 
  • There are more chances that tokenization would fail miserably if there is a lack of adequate liquidity in the secondary market. 

What Problems Does Real Estate Tokenization Solve?

  • Elimination of intermediaries such as agents and banks brings more transparency in the system.  Powered by a Smart contracts system, asset management becomes simpler. 
  • Chances of frauds are reduced due to the characteristic of immutability. Investors can easily prove their ownership by using their private keys. 
  • A detailed history of transactions is maintained in tokenization. This prevents attempts to sell tokens multiple times. 
  • Through fractional ownership, entry barriers are eased for small investors. It boosts liquidity as real estate becomes available for a full-scale investment and the chances of saleability are also higher.
  • Diversification in portfolios is ensured for institutional investors as they get to invest in different types of property. 
  • Issues such as time constraints and geographical barriers due to tokenization’s nature of existing on the blockchain which is available globally. 
  • By mandatorily ordering the token to complete formalities related to KYC (Know Your Customer) and AML (Anti-Money Laundering) guidelines, regulatory authorities can be easily satisfied. 

The Parties Who Will Be Affected by Real Estate

Real Estate tokenization is the latest trend that has the potential to disrupt any market. It refers to the division of a property into small digital tokens offering a viable opportunity for different classes of investors. The token can represent a stake in ownership, provide voting rights, holding equity, and regular access to cash flows arising from the asset. While Real Estate is generally considered as an expensive asset that is affordable only to the privileged classes, tokenization changes the typical way by which settlements occur in the industry. 

Some of the Main Challenges to Real Estate Tokenization Are 

  • There are a lot of intermediaries involved in settling a Real Estate transaction such as property agents and brokers who might oppose tokenization.
  • Not many investors and developers are aware of tokenization as they are used to handling assets by filling physical forms and documents. 
  • With many countries tightening their regulations to control the growth of cryptocurrency, an absence of an international framework for Real Estate tokenization can affect the clinching of global deals. 
  • Since tokenization uses the power of technology, it could be vulnerable to hackers who can manipulate the accounts of buyers and investors 
  • Majority of real estate transactions are backed by institutions and exchanges that provide superior custody solutions. Since tokenization operates on a trustless mechanism, it is difficult for it to make inroads into the market. 
  • The legality of tokens can be challenged by regulatory authorities under different provisions of securities laws laid down by them. 
  • There are more chances that tokenization would fail miserably if there is a lack of adequate liquidity in the secondary market. 

What Problems Does Real Estate Tokenization Solve?

  • Elimination of intermediaries such as agents and banks brings more transparency in the system.  Powered by a Smart contracts system, asset management becomes simpler. 
  • Chances of frauds are reduced due to the characteristic of immutability. Investors can easily prove their ownership by using their private keys. 
  • A detailed history of transactions is maintained in tokenization. This prevents attempts to sell tokens multiple times. 
  • Through fractional ownership, entry barriers are eased for small investors. It boosts liquidity as real estate becomes available for a full-scale investment and the chances of saleability are also higher.
  • Diversification in portfolios is ensured for institutional investors as they get to invest in different types of property. 
  • Issues such as time constraints and geographical barriers due to tokenization’s nature of existing on the blockchain which is available globally. 
  • By mandatorily ordering the token to complete formalities related to KYC (Know Your Customer) and AML (Anti-Money Laundering) guidelines, regulatory authorities can be easily satisfied. 

The Parties Who Will Be Affected by Real Estate Tokenization 

  • Real Estate Investment Trusts –  Companies that own income-producing properties across various boundaries will be disturbed due to tokenization. Though they will have a valuable portfolio to choose from, high costs involved will not attract small investors. 
  • Search platforms –  Online search platforms which list numerous apartments and villas would be affected. Owners and tenants who pay high fees to third-party agents will opt for more transparency through tokenization. 
  • Property managers – Managers and vendors who maintain and monitor different facilities would lose their income as well as jobs due to tokenization. The complex tenant contracts and mortgage agreements would be replaced by a decentralized smart contract agreement. 

    Though real estate tokenization is still in its nascent stage, it has the potential to transform the entire industry. With friendlier regulations and better acceptance among the masses, it holds a lot of promise for the future. 

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Technology 182