The Web3 space has become a hot spot in this millennium, where innovations flow every day. Yet, there has been a special welcome for applications that bind both worlds together. Real estate tokenization is one such sector of Web3 that has garnered praise from every nook and corner of the world due to its outstanding advantages.
What is Real Estate Tokenization?
To understand real estate tokenization, let us first see what tokenization and tokens are in general. Tokenization describes the process of digitizing an asset. It’s based on cryptocurrency fundraising, during which investors can exchange their fiat or cryptocurrencies for digital tokens. Thus, real estate tokenization is creating tokens using blockchain technology and assigning them to real estate property. Not only can tokens be used for the sale and represent ownership of the property, but they can also represent capital interest. This means they can be used to raise funds and attract a wide range of investments.
What are the Types of Real Estate Tokens?
There are two types of tokens used in real estate tokenization:
They work in the same way as a traditional stock asset. Equity tokens show what percentage of ownership belongs to the investor. Thus, buying this token allows you to become a joint owner of a piece of real estate.
These are debt instruments such as rentals and mortgages. The token digitizes the rent charge for real estate and automates the process of collecting rental receipts. The distribution of rent between token holders also occurs automatically. The payment they receive depends on the conditions predetermined in smart contracts during the token’s initial purchase.
What are the Advantages of Real Estate Tokenization?
Fractional Ownership and High Accessibility
Tokenization allows owners to divide the full value of the property into smaller shares. For example, a room or a section of the house’s premises in square meters can be represented by a token on the blockchain. This way, owners can sell shares to a broader group of investors and further diversify real estate sales.
Flexibility and Liquidity of Digital Assets
Anyone can invest a certain amount and become a partial owner of a property and yield profits. Additionally, tokens can be sold and purchased on secondary markets. Real estate tokens can be traded on exchanges just like any other stock. Digital ownership allows you to sell your assets at any time without the need to follow lengthy procedures.
Digital assets stored in a decentralized blockchain ledger are immune to location restrictions. Nobody can stop you from purchasing an estate on the other side of the globe in the middle of the night.
Speedy Deals and Transactions
Tokenization means no more tedious paperwork processes. Deals are automated with smart contracts, which automatically process transactions when the terms and conditions are met. Every detail is encoded into digital assets, which leaves no room for errors and no reason for unwanted delays.
Low Entry Barriers
With real estate tokens, investors no longer need large sums of money to purchase an entire property. Fractional ownership leads to more opportunities for lower-end investors and enables a more complex shareholding structure.
By offering tokenized real estate, you open up new ways to promote your business, attract new customers and investors, and gain access to more tools for selling property.
Regulations in Real Estate Tokenization
Although there are some local jurisdictions, real estate tokens generally qualify as securities. They are regulated under state and federal law. We will see how things pan out in the United States and the United Kingdom, which are crypto hubs, and real estate tokenization is permissible per regulations.
In the United States, the Securities and Exchange Commission (SEC) is the primary regulator overseeing securities offers, sales, and investment activities, including digital assets. This means that real estate tokens must be registered with the SEC, or they might also fall under one of the exemptions that free them from registration.
In the United Kingdom, security tokens are generally regulated in the same way as other types of securities with similar basic characteristics. Firms offering security tokens need to consider and ensure they comply with the authorization and financial promotions requirements of sections 19 and 21 of the Financial Services and Markets Act 2000 (FSMA).
No matter where your company operates, a qualified consulting team can help your STO campaign meet all the regulations.
How Do You Tokenize Real Estate Assets?
There are important decisions to be made and points to consider when tokenizing property. The tokenizing process involves STO, a popular crypto fundraising mechanism. STO, or Security Token Offering, is based on issuing digital security tokens on the blockchain that fall under securities laws and regulations. These tokens are sold in an exclusive STO platform built on the blockchain. They allow property owners and agencies to digitize real estate shares, turn them into security tokens, and put them up for sale. Here is how real estate tokenization platforms work:
- A real estate owner, company, or agency launches an STO campaign.
- They digitize property shares and convert them to security tokens.
- Investors create an account on the platform.
- Then, they get access to information about the property, transactions, and tokens.
- Once they get AML/KYC verified, they can purchase tokenized shares.
- All records about the investors and their tokens are safely stored within the smart contract.
When running STO campaigns, issuers and investors can enjoy multiple benefits, such as better liquidity, efficient management of digital assets, greater accessibility, low risks, direct participation, and high transparency level.
Therefore, you can see that tokenizing real estate assets have already taken off in the crypto-friendly regions of the world, where multiple properties have been sold through the method. Suppose you want to run your own real estate tokenization platform. In that case, Blockchain App Factory’s Web3 application development personnel can assist you with the technicalities and legalities that reduce your burden. They also ensure that every business need for your platform is integrated seamlessly within the stipulated time and budget, ensuring the timely launch of your new blockchain-based real estate business.