Real Estate – The Evergreen ‘Estate’
Since time immemorial, real estate has been considered to be one of the most dependable sources of investment and this trust has never failed the interest of the investors. The size of professionally managed real estate investments grew up from $7.4 trillion in 2016 to $8.5 trillion in 2017. The only other thing that we can expect to grow in the order of trillion dollars is the defense budget of the United States of America. For most people, 66% of their family wealth is their family home.
About 8.25% of all the American households – that amount to more than 10 million – count as accredited investors. It is this 8.25 % of the households that hold a little over 70% of all the private wealth in the country. The value of the private wealth in the tune of about $45.5 trillion. These numbers are enough to establish the supremacy of real estate when it comes to investments.
The Minor Setback
Real estate is, evidently, a dependable investment platform, and is poised to yield long-term returns. However, the aspect of investment in which real estate miserably fails is in the territory of liquidity. Liquidity refers to the magnitude of ease in converting an investment into cash.
This challenge presents a very difficult situation. While real estate is dependable in terms of value, it might not be dependable in terms of liquidity. This difficulty can be attributed to the limited availability of the number of people who can afford to invest in such an expensive asset. Even if they could, the classic notion of not putting all the eggs in a single basket might stop them from putting a major chunk their money in a single property. It might be very difficult to sell commercial real estate property in a prime location like Los Angeles or New York because of the insanely high costs.
What if real estate can be made more liquid without losing out on the lucrativeness or the value?
The answer lies in tokenization!
Real Estate Tokenization
Tokenization is defined as the act of breaking down an asset into discrete blocks that represent ownership in the asset. The discrete blocks are called tokens, and for ensuring top-notch security and transparency, they are developed on a blockchain. The blockchain is a decentralized, immutable, and transparent digital ledger – or rather, a network of interconnected blocks – that is used for record keeping. The process of breaking high-value real estate assets into small tokens is called real estate tokenization.
The Advantages of Real Estate Tokenization
One of the greatest advantages that real estate tokenization brings to the table is in terms of liquidity. Since high-value homes and commercial properties faced difficulties in being sold as a single entity, it contributed to the highly illiquid nature of the asset. However, with tokenization, an asset owner will be able to sell a part of their assets in the form of tokens.
Real estate tokenization also opens the floodgates for small level investors to invest in high-value properties. This helps them expand their portfolio and destroys the monopoly held by a handful of investors when it comes to high value and commercial real estate.
Type of Real Estate Tokenization
Almost any kind of real estate asset can be tokenized. The tokenized asset can be distributed to a set of investors through a real estate tokenization platform.
The different types of real estate tokenizations available are:
- Commercial Real Estate Tokenization
The ownership of a commercial property is tokenized using an audited fractionalization method and without breaking the compliance with the regulatory requirements and standards.
- Residential Real Estate Tokenization
This type of tokenization allows accredited investors to own a piece of prime residential properties across the planet. This enables them to get capital gains and dividends from the property.
- Single Real Estate Tokenization
You can tokenize your single real estate and reduce your liquidity premium by more than 20%. This enables you to raise funds for other projects and in the long run, diversify your investment portfolio.
- Trophy Real Estate Tokenization
Instances when you have acquired the real estate just to flaunt your position. You can even liquidate your trophy asset in a compliant, secure and regulated manner using an immutable ledger. These tokens can be used to raise funds for your projects.
Questions To Ask Before Investing in Real Estate Tokens
Does the token truly represent ownership shares in a special purpose vehicle or does it represent your entitlement to cash-flow from a property?
What are the regulatory requirements for investing and have you spoken to a consent representative to confirm compliance?
Have the KYC/AML formalities been completed? Does the KYC/AML accreditation apply only to the United States or does it apply globally?
In addition to this, there are also aspects like tokenomics, tokenization ratio, cash flow to token holders and the tax considerations that need to be meticulously studied before you invest in real estate token.
The Scope of Real Estate Investment Tokens
When an asset that was considered illiquid has suddenly been given the superpower of liquidity, the possibilities are endless. The scope and benefits of real estate tokenization stretch a long way both in terms of profitability and geographical coverage. Real estate tokenization can act as a bridge to factor in small investments from people towards developing the asset.
Real Estate Tokenization Platform
The act of tokenization can break the asset into smaller portions. However, it is a real estate tokenization platform is needed completeness to the process – the platform facilitates the buying and selling of these tokens. As an issuance company, you can also offer TaaS (Tokenization as service) and the tokens can be either on Ethereum or Hyperledger or Stellar.
The platform should have properties like automation of compliance, globalized KYC/AML, multi-ledger token development and automated reporting to authorities.
The Future:
Real estate, as an investment, has been a bit elusive when it comes to catching up with technology – there was a constant fear that real estate assets might lose their value as an investment if technologies take over. However, with blockchain technology and tokenization, the unimaginable task of making real estate both liquid and lucrative has been achieved.
Blockchain App Factory provides all the necessary services to tokenize your real estate, sell your tokens while being completely compliant. Do get in touch with our team should you have any requirements on real estate tokenization.