What Is A Token?
A token is clearly a digitized share. Furthermore, a token constitutes ownership of the guaranteed debt, an equity interest in a legal entity, or any form of asset in respect of real estate. Moreover, nowadays, tokenization is obtaining a grip in the real estate sector.
What Is Tokenization?
Tokenization means splitting an asset into tokens or shares. The motive of tokenization is to secure real assets, and therefore it is the reason that it is popularly known as security tokens.
What Is Real Estate Tokenization?
Tokenization is an activity in which real estate assets are transformed into certain digital tokens. In addition to this, the buyer of that token becomes the owner of that portion of the asset. Apart from this, in real estate tokenization, each token performs direct ownership of an asset. Tokenization is helpful in many ways as it helps the property purchaser in the transactions that can be done digitally instead of paperwork.
Types of Real Estate Tokenization
There is a number of types of tokenization available which are listed below:
- Commercial Tokenization
It is the process in which the business is tokenized with a legal agreement.
- Residential Tokenization
It is an activity in which the divisional ownership of residential real estate is tokenized for investors as well as asset owners.
- Trophy Tokenization
It is the procedure of tokenizing the assets of real estate.
Problems That Real Estate Tokenization Can Solve
There are some problems that real estate tokenization can solve. These are :
- Liquidity Of Real Estate
Tokenization clarifies buying and selling properties as it eliminates the middle man and permits ownership to be shifted directly from investor to investor. Hence, tokenization solves the greatest problem of real estate that is the liquidity of an asset.
- Proof Of Ownership
In tokenization, a distributed ledger is shared as well as accompanied over various sites and available by a number of people. Therefore, legal ownership is shown by the legal documents.
- Easier Searching Of Properties
In order to know the property in which an individual can invest, tokenization is the problem-solver to this. Moreover, it eases the job of the investors.
- Increased Transparency
The distributed ledger helps in improving transparency in the real estate market.
- Making Life Easier
The transactions are faster in nature as it does not involve any middlemen.
- Decreasing Transaction Cost
Tokenization decreases the transaction cost which makes the investors sell and buy property easily.
Working Of Real Estate Tokenization
To know how real estate tokenization works, there are certain phases involved. These phases are:
Phase 1 - Deal Structuring
It is the phase where certain factors play an important part. Such factors are asset type, shareholder type, and applicable regulations. Furthermore, before taking up the funds in order to launch new development, investors choose to tokenize a deal to allow liquidity for current investors.
Phase 2 - Digitization
In this stage, the information which is secured in a document is uploaded to a blockchain. Moreover, the digitization of real estate needs legal cover over individual property.
Phase 3 - Technology Selection
After digitization, there are four decisions that have to be taken:
- Selecting Blockchain
- KYC Verification.
- Primary/Secondary Marketplace.
Benefits Of Real Estate Tokenization
Tokenization reduces the hurdles in entering into the investments in assets that constitute large advanced capital requirements. Furthermore, fractional ownership is managed by a digital register of members on the blockchain safely (What is a Blockchain and How Does It Work).
- Operational Efficiency
The programmable actions on the blockchain ease the mechanization of certain processes such as investor whitelisting, compliance checks, etc.
One of the best advantages of real estate tokenization is that an individual can invest a particular amount and become a property owner.
- Reduction In Fraud
Once the transaction is recorded digitally then it cannot be altered by anyone. Moreover, tokenization offers trust in the minds of the investors of real estate.
- Reduced Settlement Time
Transactions are settled more speedily than traditional finance transactions.
Importance Of Tokenization In Real Estate
Tokenization aims at eliminating most of the problems encountered with this model by utilizing blockchain technology. It is highly important because it increases liquidity, improves transparency as well as decreases risk.
What Is Token Asset?
Asset tokenization is an activity by which an issuer makes digital tokens on a blockchain that shows either digital or physical assets. Apart from this, Blockchain gives assurance that after purchasing tokens representing an asset, then no authority can change their ownership.
Real Estate Tokenization Is The Future Of Real Estate Assets
The conditions of the markets are evolving with the help of the tokenization of real estate assets. In addition to this, investors can transfer their funds and therefore, asset owners can manage their equity. There are some factors which depicts that real estate tokenization is the future of real estate assets. These factors are listed below:
- It increases the real estate industry by assuring better market transparency.
- Tokenization is expected to yield a revenue of $4.2 billion for the global real estate industry in the next 5 years.
Therefore, these factors prove that real estate tokenization is the future of real estate assets as it offers high security as well as perfect flexibility.
It concludes that tokenization constitutes the capability to change the way people invest in real estate. Moreover, developers should consult experts in securities, tax as well as real estate professionals early in the process of planning a real estate security token.