- Real estate tokenization is a new wave that has brought opportunities to investors and individuals at a cheap price.
- Accessing real estate through tokenization has been made easy and at an affordable price, moreover, it promotes risk management.
Tokenization of real estate is storming the investment of real estate surfacing benefits to both investors and estate owners. Tokenization has brought digital ownership to reality for individuals who cannot afford funds and cover security issues. Tokenization of real estate is whereby ownership of estates is divided into smaller tokens which can be transacted and traded on blockchain technology.
In this article, we will be exploring what tokenization of real estate is, how real estate tokenization works and the benefits it provides. You will be able to understand its importance and how it will transform the real estate investment market.
What Is Tokenization Of Real Estate?
The Tokenization of Real-World is the process by which properties are split out into smaller fractions of digital tokens into blockchain technology. The split tokens enable buyers and sellers to conduct transactions of digital property. Moreover, the tokenized property presents ownership of real estate.
Tokenization of real estate comes with advantages, there are several benefits like increased liquidity, lower barrier to entry, liquidity creation, lower transaction cost and transparency. Tokenization enables investors to acquire a share of property, moreover, it enables accessibility of traditional estate by improving its liquidity. This allows easy access to real estate and improves its market value through blockchain technology.
How Tokenization of Real Estate Works
Tokenization is splitting a large property into smaller fractions with the help of smart contracts that are supported by blockchain technology. Therefore, if an investor decides to buy real estate, he/she owns a share of the estate. This enables the buyer to be associated with any kind of profit or loss with the estate.
Let’s take a life scenario. For instance, Michael owns a property worth $70,000 and Juliana decides to buy the property at a lesser value than it is worth. But remember Michael will not accept an amount less than $70,000 since that is not what he wants. In this scenario, the tokenization of real estate comes into play. The property will be split, then we assume that each unit presents $ 5,000 of the token. Therefore, Juliana will be able to invest in the property at the amount she has. The procedure will be transparent since this will be done over a decentralized network.
Tokenization of real estate is advantageous to every investor since there is no single estate which cannot be tokenized. For instance, Storey buildings could be tokenized into smaller fractions and estate investment would be affordable to investors. This could be a better investment plan since every token will have an investor who can benefit from the investment.
Importance Of Real Estate Tokenization
Tokenization of real estate is important to investors since you do not need the whole capital to invest in real estate, unlike traditional real estate. We will be looking at some major importance that tokenization has created.
Firstly, tokenization has enabled easy access to real estate. Acquiring real estate requires a full deposit and this has been a challenge to many. Investors have gone out of their way to acquire funds just to access real estate. Borrowing from financial firms and friends to raise capital has been their way, but with tokenization, investors can earn a share of real estate and invest in it.
Additionally, tokenization of real estate has created a low transaction cost. It has smoothened processes that would require cost, it has eased the transaction cost by reducing unnecessary costs and procedures that require funds. Moreover, intermediaries are overdrawn by the smart contract, Smart contract executed agreements automatically reduce middlemen costs. Besides, Blockchain technology encourages transparency, therefore all details; transactions, properties and ownership are stored where both parties can access it.
The most prominent success that tokenization is showing is the increased liquidity it brings to the market. For instance, the high cost and processes which require a lot of money is solved through liquidity. Tokenization eases this by enabling easy access to property, real estate buyers and sellers acquire fractional properties which are tokenized, and it allows the property to be sold easily which enhances liquidity in the market.
The tokenization real estate market is decentralized, this gives investors control of the market, unlike traditional real estate where the centralized authorities controlled them. This allows the market to grow economically since they can make their own decision and eliminates issues that drag the market backwards, moreover, the decentralized ecosystem allows investors to grow equally.
Although there is development being made in the real estate industry, there are poised challenges facing the industry. For instance, the regulation matter, several employees working in the regulation industry do not understand what and how blockchain works. They employ various regulations that pave issues to investors willing to invest in tokenization real estate. This poses trust issues to investors which limits them to invest in real estate thus decreasing developments.
Real estate tokenization is one of the ways investors can invest without risking all their funds, through tokenization we are able to acquire investments easily and at an affordable price. Additionally, real estate tokenization creates employment and opportunities for investors to expand their investments, besides it gives investors ownership.