Fund your Next Property Project on a Real Estate Tokenization Platform
Real estate tokenization is the brilliant result of the convergence of property investment and blockchain technology. It is an emerging trend that is set to revolutionize investor’s perception and activities involving the world’s largest asset class.
Tokenization turn property into digital assets that helps the fund or asset owners to raise capital fast and efficiently. The entire process is streamlined so that the investors can have enhanced access to real estate investments along with improved liquidity and transparency.
The process of an asset to utility token transformation takes place over a blockchain-based real estate tokenization platform, which is the key point of this blog. We will further elaborate on the process of tokenization of various other relevant factors associated with it.
Tokenization of Real Estate Asset
The term tokenization was coined to define the process of raising funds using cryptocurrencies, where investors exchanged crypto or fiat currencies to buy utility tokens. Tokenization when linked with real estate is used to securitize a piece of property.
The property or asset is divided into multiple shares or tokens which can be sold to the investors, through blockchain-based tokenization and trading platform. Each token refers to a predefined share of an asset, often regarded as security tokens.
The immutability, which happens to be a salient feature of blockchain offers enhanced security to the tokens, which can be traded via trading platforms, exchanges, and Alternative Trading Systems or ATS.
Real Estate Token Development
Tokenization of property leads to the creation of real estate token (ERC20) each of which represents a share of the respective property. The total values of all the tokens will add up to the total valuation of the property.
For example, let’s say that there is a property of 200,000 square ft worth $80 million that you want to tokenize. It will lead to an equal division of the property into 200, 000 shares, with each valuing up to $400. You can make even smaller portions of the property as per your convenience and funding strategy. The more cost-effective the shares, the more it becomes accessible to a significant percentage of global investors, raising the overall value of the property.
Whether you want to put the entire collection of shares on the market for sale or limit the asset share margin, it’s totally up to you. That way you can retain majority shares in property ownership while raising funds.
Selling Tokens to the Investors
There are various terms used to define the selling of real estate tokens. Commonly it is termed as security token offering or STO. It is also called tokenized asset offering or TAO and tokenized security offering or TSO.
STOs are not the same as ICOs or initial coin offerings. In the case of the former, the investors are aware of the value of the asset pegged to the token and long with knowledge of profit valuation or future price appreciation from the asset.
There are various ways to sell the token to the investors. It can be sold via a crowdfunding campaign which is a common practice. In certain cases, the asset owners, market and sell the tokens independently via a real estate tokenization platform.
Token Listing on Exchange for Trading
After the creation and selling of tokens to the investors comes the part where these utility tokens need to be listed under various exchanges so that it can be traded by the investors. The exchange needs to have regulatory compliance with concerned bodies to list the tokens for trading.
One can also partner with an ATS (alternative trading system). These platforms are registered under FINRA, and more than often work with asset owners to list the tokens, providing the investors with access to a secondary market with high liquidity.
A token can be listed under multiple exchanges. The listing criteria vary according to the company policy of each, abiding by which one can list the token easily.
Real Estate Tokenization Benefit for Owners & Investors
Despite being the largest asset class out there, real estate investments are quite minimal compared to the other asset classes. The reason boils down to a legacy architecture that is still heavily dependent on manual documentation and archaic transaction processes. Blockchain revolutionizes and transforms that system infusing it with values such as scalability, transparency, traceability, timeliness, and augmented security.
Tokenization is just one of the many essential aspects of blockchain integration within the real estate sector. It opens up a lot of avenues for different types of property investments for people with small capital strength as well. Apart from a domestic property, tokenization allows investment in foreign real estate seamlessly.
The primary role of tokenization is to initiate a peer-to-peer model of negotiation and transaction eliminating the need and existence of third-party intermediaries, which has made real estate investments a lengthy and expensive process. Through a real estate tokenization platform, investors can easily buy and sell the property and raise capital for commercial projects.
Trading such tokens take place instantly without incurring a heavy price. Tokenization enables owners to raise capital without any interference from financial intermediaries who usually weigh down or slow down the projects.
Tokenization successfully transcends the traditionally high capital barrier of entry in the real estate market for the investors, ensuring subsequently high returns and increased liquidity against the asset. Being backed by an asset class also makes the tokens less volatile and safer for investment
Real estate tokenization has opened up the $228 trillion global real estate market to all kinds of asset owners, investors, and developers in the market. Instead of being reserved for institutional investors, everyone can now invest in exciting and lucrative property projects.
Tokenization has blessed the real estate sector with much-needed accessibility, transparency, and liquidity. This transformation is expected to attract more investors all stature to come forward and buy/sell assets, generating more revenue for the overall industry, and uncovering endless possibilities for all stakeholders.