A Detailed Account of Tokenization of Real Estate Asset

Blockchain in Real Estate is the biggest change now driving innovation. It can play a role in different aspects like buying, selling, and financing a property. The biggest problems in the current Real Estate industry are it is not open to everyone, lacks transparency, involves tedious paperwork, has a large number of intermediaries, has high fees, and does not possess enough liquidity. Blockchain brings decentralization, transparency, and immutability to the industry. It can revamp different areas like property search, due diligence, financial evaluation, property management, deed management, land registry, home automation, real estate investing, and post-occupancy management forever. 

How Does Tokenization of Real Estate Asset Work 

  • The entire property will be divided into tokens of specific value. 
  • The tokens will represent an ownership stake in various asset classes like equity, debt, and cash flow.
  • The tokens can be easily sold and liquidated on various crypto exchanges in the market. 
  • It democratizes the whole process of real estate investors by giving more profitable opportunities for small investors to participate. 
  • Wealthy investors can also efficiently diversify their portfolios across a range of properties. 

The Different Use-Cases of Blockchain in Real Estate

  • Smart contracts help in automating the various processes without the need for any paperwork. It can authenticate agreements on a real-time basis by eliminating the role of the middleman. This ensures a high level of transparency to all the parties involved and reduces the chances of disputes and fraud. It improves due diligence, speeds up the entire process, and decreases the total costs. 
  • The transaction process can be conducted on the immutable blockchain network itself. The digital ledger will take care of the submission of the offer, verification of the property’s title deed, acceptance and verification of the offer, financing, and closing of the offer. This can impact the jobs of real estate brokers and agents. Hence, automated payments of rent remove the need for manual reconciliations. 
  • It can automatically verify the credit checks, income levels, identities, debt to income ratio of the potential borrowers of a property offered for sale. Since the mortgage financing process is time-consuming and cumbersome by submitting multiple documents to the banks and brokers, blockchain technology is a big boon as all the important documents can be held on its incorruptible network. 
  • Land titles that are maintained offline with plenty of paperwork can be kept online instead. The title ownership of a property can be quickly verified on a real-time basis. It also becomes cheaper and more transparent. Hence, the blockchain acts as a secure record-keeper. 
  • It also boosts the liquidity of a real estate investment as the tokens can be easily traded by the buyers and sellers. This will also lead to a drop in issues associated with exit strategies. 
  • The ownership of an asset can be checked via blockchain. Since there is the concept of fractional ownership, there will be multiple owners of a single property. 
  • Tokenize Real Estate can ease the process of leasing, property maintenance, and cash flow management. 
  • Apart from reducing the various intermediary costs, it can reduce expenses involved in inspection, registration, loan fees, and taxes. 
  • Blockchain-based planning platforms can take into account the feedback from the public or local community by providing token-based participation incentives. This improves public confidence in property development. 
  • Real-time financial audits can be performed benefiting the asset owners and investors. This helps in improving the relationship with the regulatory authorities with better compliance. 

The Progress Made So Far in the Field of Tokenize Real Estate

  • Many properties are being bought using digital currencies through the usage of smart contracts. 
  • Sweden and Dubai are the pioneers in using blockchain for various aspects in real estate. 
  • In Sweden, experiments are being made to test transfer of property through the application of blockchain 
  • The UK government is planning to move the entire country’s land registry to the blockchain platform, Corda by 2022 under the project named ‘Digital Street’. 
  • According to Matthew McAuley, director of Global Research at JLL, a Commercial Real Estate Services company, blockchain can be adopted more if work is made on increasing the computing power, formulation of a proper legislative framework, and immutability. 
  • Companies like Propy, a real estate transaction platform, and RE Consortia, which manages different asset classes are actively using blockchain in Real estate to improve the overall investment experience. 

What Can Be Expected from Real Estate Tokenization in the Years to Come? 

Further work is required for mass adoption by the common man. Blockchain can enhance and improve the inefficiencies of all the business methodologies. Since Tokenization of Real estate asset is undergoing a trial and error phase now, constant progress is required to gauge how it will work out in the future. It is already very clear that headway is being made and the future looks promising in terms of the benefits that blockchain technology can bring to Real estate tokenization as a whole. 

Leave a Reply

Your email address will not be published. Required fields are marked *