Digging deep into a blockchain-real estate use case: Real Estate Tokenization.
Beyond the hype and debates of the crypto world involving trading, market volatility, and bitcoin halving; there lies an extremely valuable use-case namely real estate tokenization. Our real estate market has grown increasingly complex owing to the involvement of multiple stakeholders, repetitive procedures, lack of valid documents, and varying regulations.
The past records show that the real estate market has always yielded high returns. However, such benefits of investments are only enjoyed by the elite class, owing to the requirement of high liquidity of money. Further, the market is plagued with a number of intermediaries, obscure records, and fraudulent activities.
The technological innovation like blockchain technology now presents a chance to tackle the concerns of the real estate market along with providing us with a new and efficient business model.
Blockchain-Real Estate Applications
In one of our previous posts, we presented you with 5 areas where blockchain can serve the real estate.
Let’s rehash the key points of the blockchain-real estate applications before we proceed onto the role of property tokens in a real estate market
- Decentralized Digital Records: Blockchain ensures storing digital records on multiple computers in multiple locations (distributed ledger). This further removes the threat of losing, destroying or damage of records.
- Identical Records across Multiple Stakeholders: The transparent blockchain ledger possesses one single truth across multiple stakeholders. Any time, a stakeholder updates data in one ledger, the same information is automatedly updated across the other copies.
- Standardized Multiple Search Listings of Property: Blockchain-real estate can make the data more accessible and standardized by providing Multiple Search Listing (MLS) under one site. All the entities, including brokers and buyers, can use a single source to gain information related to any property.
- Property Tokens: The blockchain-driven real estate sector can give rise to new business models like property tokens. The idea is to tokenize the real estate shares of the property to provide a more accessible and efficient platform.
In this article, we are going to discuss the benefits of this particular use case namely property tokens. Let’s dig in!
Real Estate Tokenization
Real estate tokenization or Property tokenization basically represents shares or tokens of the said real estate property. These tokens allow property owners to issue them on the blockchain platform. The token represents the underlying asset or real estate property. Unlike utility or cryptocurrency tokens, which are not backed by any real value, property tokens are backed by the underlying tangible asset.
Tokenization allows property owners to create a digital copy of their assets. These tokens, like stock market shares, can be sold to other investors. By enabling digital tokens on the blockchain platform one can instantly transfer it, even internationally, with reduced costs. Further, the medium of blockchain technology governs security and immutability in the structure.
Tokenization of real estate property provides several benefits to the property owners while also empowering the real estate market.
Benefits of Real Estate Tokenization
There are a number of benefits that investors and property owners can appreciate through the tokenization of an asset.
Easy Transfer of Ownership
Instead of going through complex and long procedures, blockchain-backed asset tokenization provides instant and frictionless transfer of a property. Our current conventional system can take days or even weeks to complete the entire process.
Moreover, our present process involves multiple stakeholders with little or no coordination and a lack of transparency that further induces loopholes for fraudulent actions. Blockchain can reform these processes by facilitating peer to peer transactions of the tokens and provide transparency in the system.
New Business Model of Fractional Ownership
The present system of our real estate market requires a considerable amount of liquidity to enter, thus creating barriers for a lot of people. Property tokenization allows anyone to invest only a fractional amount and buy shares of the asset instead of buying the entire property.
Each digital token stands for a fractional portion of the property. Property owners do not need to sell their whole property and can instead trade a portion of it by selling the equivalent digital tokens. This entire eco-system can create a new business model, only possible with security tokens.
Automated Dividends through Smart Contracts
The digital tokens are stored on the blockchain and can further be managed through smart contracts. The pre-defined conditions specified inside a smart contract can automate processes without the need for constant monitoring.
Smart contracts can be used to automate processes like dividend payouts. For example- Let’s say a property is fractionally owned by multiple people. Smart contracts can facilitate automated year-end dividend payouts according to the shares of property owned by an individual. This diminishes the ‘trust factor’ needed in any deal and reduces the need to manually monitor it.
Tokenization of property can give unsurmountable benefits to property owners or managers. It reduces the complexity, lowers the barrier to entry in a real estate market, and creates new business models for investors. Further, it also increases liquidity while giving access to everyone. The backing of blockchain and the inclusion of smart contracts further extends the potential of tokenization in the real estate market. More importantly, whether you recognize it or not, these modern innovations are set to revolutionize the future of the real estate market.