As blockchain-powered solutions expand far beyond the financial industry, investors are beginning to turn their eye to the use of cross-industry tokenization. Blockchain’s decentralized and transparent characteristics make it appreciated by banks, investors, and logistic experts alike –– as its potential applications are innumerable and far reaching.
Now global governments have begun testing the waters of blockchain’s potential when it comes to property tokenization by putting certain property-related issues onto the blockchain.
Real Estate and Tokenization
The value of asset tokenization is particularly relevant in real estate markets, which is by far the largest asset class in terms of global asset value. According to a report, the size of the professionally managed global real estate investment market grew from $7.4 trillion in 2016 to $8.5 trillion in 2017.
Without question, home equity as a source of capital remains a global trend –– even if subject to market volatility. It still remains one of the safest places to place wealth, so it’s not surprising it’s going digital.
From enhanced liquidity to lower transaction costs and faster processes, tokenization of one of the world’s largest asset classes will undeniably change the way we buy, sell, and trade property in the not so distant future.
How Real Estate Tokenization Works
In a nutshell, tokenization is the process of transforming an asset into a digitally represented token. In the same sense, real estate tokenization is the process of digitizing the value and the ownership of property into a token –– or multiple fractional tokens –– that can be distributed among investors.
This process gives the property holder the right to own a portion of the property legally, and the creator of the token increased liquidity of funds.
Another set of advantages of tokenizing property assets are increased investment opportunities. By bringing in a large pool of global investors who would want to invest in real estate in other countries, new investment opportunities are expanded through an increase of asset liquidity and implementation of collective management use cases.
What Real Estate Can Be Tokenized?
Since tokenization is fairly flexible, a token could represent ownership of an underlying real asset, an equity interest in a legal entity, interest in a debt secured by the asset, or even a right to share in profits arising from use of the asset. Use cases are endless and new investment opportunities are still yet to be explored.
Even the types of property involved can vary. From single-family homes to office buildings to retail spaces, and everything in between, real estate can be defined in a broad manner. While this may sound too good to be true, several models of real-estate tokenization are already being actively used, including:
- Special-purpose vehicles
- Shares in real estate funds
- Loans to development projects
- Tokenized REITS