Tokenize Your Real Estate Assets: A Brief Note
Real estate is one of the most lively, on-demand industries in all likelihood. It is also considered to be one of the most profitable, as well as safe investments. It is a dream for any common man to own a house/ any real estate property. It goes without saying that real estate is one of the major, tremendously growing industries and is contributing to the global economy to a large extent.
To substantiate the above mentioned, let’s take a look at some interesting growth numbers that the real estate sector has accomplished globally over recent years.
The growth of the global real estate market
- The market size of the global real estate market increased from $7.4 trillion to $8.5 trillion in 2017, and to $8.9 trillion in 2018.
- For a majority of people, 2/3rd of their family wealth is invested in their own family house.
- As per the report of the federal statistics, real estate’s contribution to the US economy was more than $2.7 trillion in the year 2018. Also, the GDP contribution was about 13%.
- The industry employed about 2 million corporate people and generated a profit of up to $10 billion.
These are a few out of many statements that prove real estate is a wide industry and is ever-growing. Even so, like every other industry, real estate has its own set of hurdles such as environmental changes, price volatility, long, tedious processes, increased mortgage rates, etc.
Also, with the evolving technological trends, traditional real estate business is plugging away to survive and sustain. This is where “Tokenization” comes into play and transforms the industry, removing all the challenges involved, and helping investors with efficient business experience. Now, what is real estate tokenization? Here’s a quick glance.
What is real estate tokenization?
Real estate tokenization is the process of convert the real estate asset values into digital tokens. By doing so, the asset value can be divided into multiple shares, as well as the ownership of each share. The tokens represent a single property or a portfolio of properties. The tokens are backed by blockchain technology, which is a globally distributed digital ledger that helps record, secure, and verify the transactions that happen with the exchange of tokens.
It uses blockchain technology and brings in numerous benefits for the users, over the traditional real estate business. Here is a list of some of the crucial ones.
Benefits of tokenizing Real estate:
Liquidity is one of the most chief advantages of tokenization. In the traditional real estate system, investors often face difficulties because of illiquid assets. Tokenization provides improved liquidity to investors, helping them with an easier, quicker buying and selling process.
Tokenization removes geographical barriers. Potential investors from anywhere around the world with adequate capital and an internet connection can participate and buy/sell shares of properties.
Elimination of entry barriers
Previously, real estate was considered a business only for deep pockets and was a dream for many. But with tokenization, the property value is divided into different shares, which makes it convenient and paves the way for small-time investors to participate and own a share.
The transactions recorded on the blockchain are immutable i.e., they cannot be erased/ altered once recorded. This assures the user’s safety, and no transaction can be falsified.
In the traditional real estate business, there is too much involvement from third parties such as agents, brokers, etc. But tokenization removes middlemen and allows users to conduct direct transactions. Here, each user will have their own private key with which they can access their assets. This ensures a highly-secure, seamless, risk-free business experience and transactions at reduced costs.
What kind of real estate assets can be tokenized?
- Commercial real estate tokenization– This includes commercial properties such as offices, retail properties, such as restaurants, shopping complexes, supermarkets, industrial buildings like warehouses, manufacturing offices, factories, multi-family apartments, hospitality buildings (hotels), etc.
- Residential real estate tokenization– Undeveloped lands, houses, single-family or multi-family dwellings, townhouses, etc. come under residential real estate properties.
- Trophy real estate tokenization– Trophy real estate properties include the top 2% of properties in categories like residences, preserved architectural or historic buildings, agricultural lands, etc.
- Single real estate tokenization– Single real estate tokenization is the tokenization of individual properties into fragmented shares. It helps convert the illiquid asset into liquid and helps with efficient buying/selling or converting the value into crypto or fiat money.
With tokenization and blockchain highly influencing the real estate industry, if you want to tokenize your real estate, there are some essential elements you need to know about and give proper attention to, before getting into the development process, to make your business credible and profitable. They are mentioned below.
What do you need to know before tokenizing your real estate asset?
- Type of the asset – You need to be clear about which type of real estate asset you need to tokenize and plan the structure around it. You can decide the requirements based on the type of real estate asset you want to tokenize.
- Location – The location is a crucial factor. Nobody would want to invest in a property which does not have a proper surrounding or not located in a mainstream area. And also, the legal restrictions differ from country to country. So, it is important that you give prior importance in choosing the location.
- The ratio of tokenization – The next important step is choosing the ratio in which the property has to be tokenized. The negotiation should be discussed properly between the property owners and the investors for a seamless business, and to avoid any breaches in the future.
- Mortgage – If the property that is going to be tokenized is already linked to a mortgage, the owner should make sure to gain consent from the authority linked to it, or settle the mortgage to avoid any glitches.
- Track of the token holders – The property owner should keep a clear track of how many investors are holding shares of the property and the share value they hold. This helps eliminate any confusion in the future and conduct a smooth business. In order to do this efficiently, the owner will have to connect to security-token exchanges to track the shareholders.
- KYC/AML – This is also of the essential factors to be looked into, as it helps with authenticated users for the platform. The property owner should attribute to permitting only accredited investors and verify them properly instead of just taking their consent into account.
- Legal frameworks – The property should make sure the platform complies with all necessary legal frameworks. The tokens might be regulated under anti-fraud, consumer-protection laws, money services law, and commodities regulations. A thorough check of this will ensure sustainability for the business in the long run.
What is the role of STO’s in real estate?
Research says that the global real estate market prices have increased by more than 60% from the year 2000 to 2018. This was hard on the majority of the world’s population to invest in the real estate market. But, STO, along with tokenization, settled this crisis and paved the way for easier access to small-time investors.
With real estate STOs, the security tokens represent the market value of the tokenized real estate properties as small units or tokens, thereby allowing fragmentation of ownership and allowing efficient business processes for the investors. Also, real estate STOs offer more security, stability, and blockchain alongside democratizes investments and bring the real estate market to the masses.
How to tokenize your real estate? What is the best way?
If you want to tokenize your real estate and launch security tokens, there a few steps you have to undergo such as,
- Conduct detailed research on market requirements and expectations of the potential investors.
- Analysis of existing competitors and understand what they offer.
- Decide upon the type of asset you want to tokenize.
- Evaluate the current value of the asset and validate it.
- Look at the tokenomics carefully.
- Write, code, and test smart contracts.
- Decide on the equity shares and cash flow for the platform.
- Integrate the necessary features, technical, and security protocols into the platform.
- Prepare for the launch.
To do all of the above-mentioned processes, one needs a lot of time, money, and quality expert assistance to sustain the business in the long run. With the progressing demand and popularity for tokenized platforms, there is a multitude of companies offering real estate tokenization platform. Their tailor-made features, functionalities, and necessary integrations, which will save a lot of time and money for you, and you can gain robust services from market experts. All you have to do is, conduct proper research and choose the right company. To do that, here is a list of features you need to look into.
Essential features for a real estate tokenization platform
- Automated legal compliance
- Automated Globalised KYC/AML verification
- Multi-ledger asset token development
- Non-fungible tokens
- Cutting-edge blockchain technology and smart contracts
- Automated reporting to authorities
- High-end security
What is the future for tokenized real estate?
We are all aware that our present generation is making headway towards a digital revolution. Blockchain technology is transforming most of the major industries mainly, real estate. As discussed before, tokenization with blockchain removes every major challenge faced by real estate investors and offers them a more efficient business experience. This is the reason that tokenization is continuing to evolve with each day globally.
According to a report of the US and European markets, based on property tokenization, it has been predicted that the global real estate market will hit revenues of up to $4.2 billion by the year 2025. Blockchain has already become a game-changer in the real estate industry, and it is just a matter of time, it becomes the future of the industry. Tokenization with blockchain will broaden the investor base in the real estate market and change the phase of the industry. With this promising scope for the future, if you are looking for tokenizing your real estate, time is never better than now.
How much does it cost to tokenize a real estate property?
The cost of tokenizing your real estate property depends on various factors, such as the features you choose, the security and technical integrations, and your personal customization preferences. However, as discussed previously, going through the whole development process will cost you a lot of money. Instead, you can go for a recognized real estate tokenization company offering ready-made solutions, which will be highly useful to attain reliable, cost-effective services at a short turnaround time.
We at Blockchain App Factory, work with some of the market leaders of cryptocurrency and blockchain developers. Our experts will help you with a real estate tokenization platform that is fit as a fiddle. Our developers will integrate the most advanced features and functionalities, state-of-the-art blockchain technology, and security integrations into the platform, which will gain you a competitive advantage and widen your scope globally.
We also customize the platform according to your desired preferences at cost-friendly prices. Our services are really quick, and your platform will hit the market in no time. Our dedicated developers strive to make your business dreams a reality by offering monotonous customer support. Reach out to us to discuss some striking business opportunities.