What does it mean to tokenize real estate?
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Tokenization is the process of converting rights to an asset into a digital token. In other words, Tokenization involves the representation of fractional ownership interest in an asset with a blockchain-based token. To tokenize real estate refers to representing an ownership interest in real estate with a token. The token could simply be ownership of an asset, equity in a structure that owns the asset or an interest in debt secured by the real estate and so on.
Tokenization is a digital process where via blockchain technology real properties are tokenized and distributed via a dedicated exchange. Tokenization is a viable and easier process aims towards perfecting real estate investment by investors or crypto-enthusiasts.
Real estate investment trusts (REITs) tend to be illiquid because once you buy your shares they cannot be sold. Tokenization can bring some liquidity to this investment, which is why tokenization of real estate is gaining momentum across the globe.
The use the Proof-of-Asset Protocol, based on the blockchain technology, allows the release of tokens backed by the square footage of the future apartment. After the tokens are released all the investors have the possibility to sell their tokens. By doing so, they are able to obtain the money invested in the project. Token price is stable and appreciates while the apartment is built.
So the real-estate investment trust receives the capital to invest in illiquid assets, while the buyers, and the lenders among them, have an opportunity to exit prior to the end of the building process.
A popular method of fundraising, real estate tokenization is predicted to change the way property investment is performed globally. Like any type of STO, real estate tokenization goes through numerous legal formalities before being listed on a dedicated exchange.
The benefits of tokenizing real estate are many -
- Real estate is an illiquid asset, creates an investment pool for tokens on a global scale.
- Tokenization enables virtually anyone with an internet connection and the required monetary funds to invest.
- As real estate assets become more liquid, the restrictions for investors become negligible.
- Manual work is minimal as smart contracts are used to allocate and manage tokens.
- Greater security is guaranteed by cryptographic encryption.
- Tokenization process eliminates the need for middlemen, making the process of investing in assets fast and cheap.
- Unlike speculative cryptocurrencies, real estate tokens are asset-backed and pose lower risks.
- The underlying blockchain technology automates legal compliance, making clearing and settlement more efficient.