July 15, 2022
Real estate tokenization – what does it really mean? The tokenized real estate assets are essentially digital shares of properties launched and tracked on blockchain networks.
In the last couple of years, more and more real estate firms started partnerships with established fintech providers to utilize digital shares (tokens) and alternative trading systems to facilitate their offerings and investor liquidity.
The tokenization of the real estate assets gives the investor control over when and how much of their stake they sell, but with the stability of a traditional real estate deal.
What are the real estate tokens?
Real estate non-fungible tokens (NFTs) do not directly represent physical parts of real estate in its materiality. Instead, they represent shares of a special purpose vehicle (SPV), this SPV being a company that holds the real estate property. Depending on the investment form, the investors have a direct claim on the cash flows from the real estate or even the land itself as holders of shares of the SPV.
This mechanism ensures that investors are well-protected. Dissimilar to the underlying real estate, the sale of shares does not require amendments to the land books, making property-backed tokens faster and more flexible to transfer.
What types of real estate can be tokenized?
Like traditional real estate investments, the types of real estate that can be tokenized also vary, including residential or commercial property, and industrial spaces or retail spaces. As tokens are secured by physical assets, their value will fluctuate in line with the performance of the asset, similar to real estate investments but with the added convenience the blockchain technology offers, specifically the safe and frictionless storage and transfer of the tokens.
The advantages of real estate tokenization
Tokenization has the capacity to radically transform the global real estate market. It offers both issuers and investors a wealth of substantial advantages over the existing investment options, as well as opening up opportunities for a bigger number of investors to enter the market. Below we’ll consider some of the biggest gains that tokenization is bringing to real estate.
Tokenization in real estate has yielded the positive outcome of fractional and divisible ownership. The value of real estate has traditionally been indivisible as it is treated as a single asset. Tokenization makes it possible to fractionalize the asset, leading to greater access thereto and better liquidity of the investment.
The tokenization of real estate also brings a greater transparency. The blockchain is capable of recording each transaction that takes place on it. Whenever a single token undergoes a transaction, all the participants become aware of it. Therefore, investors can look at the token’s history, pricing, as well as other transaction details at any time.
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