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NEWS - How is tokenized real estate democratizing this market?

How is tokenized real estate democratizing this market?

tokenized real estate - Mã hóa bất động sản

A tokenized real estate revolution is spreading across the world as property specialists  increasingly tokenize assets to improve liquidity and make real estate  investment easier, cheaper and more efficient.

Tokenized real estate is the latest  advance in “PropTech” and is fuelled  by growing adoption of blockchain  technology and the emergence of new  digital asset trading platforms that  have created new ways to buy and sell  property. 

Read more: The Investor’s Guide to Commercial Real Estate

How Does Blockchain Help With Real Estate?

It is not easy for everyone to make investments in real estate. In some cases, the inability to buy real estate may be due to finances. Even those who have the money to make an investment may not be able to invest for one reason or another depending on where they live. If someone hopes to buy a piece of property from a country where they do not live, it can be more difficult to make an investment unless you have all of the resources already in place.

However, things are starting to change thanks to some new technologies that have become available in recent years. The tech that has the potential to truly democratize real estate investing is called blockchain and more specifically tokenization.

One of the biggest benefits of blockchain technology is the fact that it can help to eliminate dependence on the middleman. This is true when it comes to real estate, as well. In most cases, when a piece of property is bought or sold, there is going to be heavy reliance on third parties to help with the process and the transfer of the real estate. For example, local government is often involved, and that’s just one of the middlemen involved.

When you have too many people involved, it can be needlessly complicated, and there tends to be a greater chance for errors and problems to develop. In addition, all of the documentation that is needed for the real estate transfer tends to be in hard copy. It is not in digital form, which means that it can be more difficult to have access to all of the information when you need it. Moreover, when these items are in hard copy form, it will make them more difficult to update. Sometimes, the paperwork can be lost, and there is no record of it. There is also the potential for fraud and tampering in these cases.

The tokenization is a breath of fresh air in these situations. Everything is transparent and easy to trace. Everything that happens with the property is recorded digitally with the property, which becomes a digital asset. This includes the deed, ownership, transfers in the past, and everything else associated with the property. The record is public, as well, and it is validated and replicated on a large number of computers. This means that it is not going to get lost, not going to be possible to tamper with the information and can eliminate the need for a third-party broker.

Democratizing tokenized real estate investment

The asset tokenisation market is predicted to grow to US$24 trillion by 2027 – by which time the World Economic Forum expects 10 percent of the world’s GDP will be traded with the help of blockchain technology.

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Asset tokenisation uses smart contracts or blockchain-based contracts to convert physical assets into digital assets. Every asset can be tokenized – from bonds and commodities to artwork and racehorses.

But real estate remains the most mercantile of them all with a global asset value of USD228tn. Although Covid-19 lays property markets to waste worldwide, tokenization gives real estate the lifeline it has thrown other asset classes: high liquidity.

Traditionally fixed, illiquid assets such as real estate can be divided into multiple tokens, fractionalizing the asset to offer investment opportunities to demographics who cannot afford to buy large assets on their own – a move that could truly democratize access to property ownership while improving market liquidity.

Partial investment in real estate is not a new concept. However, digital investment tokens have drawn scrutiny and mistrust due to regulatory ambiguity. Currently, anyone can issue tokens without clear and enforceable accountability because token creators are not regulated financial institutions.

The concern remains that a token might not even have a legal document linking it to a real asset. So inventors should research carefully before deciding to invest in the tokenized real estate.

Nowadays, only a fraction of the global real estate market has been tokenized

Fragmented development of digital  asset trading platforms together with  the numbers of new players entering the  market, and the absence of centralized  reporting of deals, complicate efforts to  assess total current value.  

However, based just on the value of  deals made public in recent years,  tokenization already accounts for billions of dollars worth of digital property assets  being traded annually and the value of  individual deals is generally increasing. 

It could take time for a critical mass of institutions to invest strongly in tokenized real estate.  However, if even just 0.5% of the total 280 trillion dollars global property market were tokenized in the next five years, it would  become a 1.4 trillion dollars market. 

The fact that tokenized real estate can be fractionalized could also attract retail investors, who may have previously been deterred by the cost and complexity of entry. By utilizing distributed ledger technology, both trading and post-trade processes become almost frictionless and far less costly. This would serve to open the market to a wider pool of investors as buying into a fund becomes as easy as purchasing a new item of clothing online. As we have seen, these collective investments would also allow these new investors partial access to illiquid assets with typically higher yields, something that would be a big draw in the current low-yield market environment. 

Both today and in the future, tokenized real estate will democratize investment opportunities while reducing the traditional barriers to entry faced by those looking to acquire assets and build wealth.

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