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11th Oct 2021

Tokenization of Real Estate

11th Oct 2021

Tokenization of Real Estate

Tech Trend that Changes the World of Finance

Investing in real estate has always enjoyed great popularity and is often recognized as one of the best ways to increase capital.  

Tokenization using blockchain technology will soon bring real estate investments to a completely different level, and take it to the digital era. It will create efficient mechanisms to increase the liquidity of real estate, simplify the procedure of buying, maintaining, and selling the property. What is also important, is that the buying group changes dramatically: tokens can be offered to a much larger international investor group. Also, assets can be divided into smaller assets parts and therefore investors with a smaller budget also have the chance to partake in large projects that were previously inaccessible because of high capital requirements. 

Tokenization of Properties: Peculiarities 

Real estate tokenization is the "transfer" of real estate assets from the real world into a digital format, preserving all of their significant indicators (value, class, and profitability). It is done through the creation and issuance of smart tokens (digital units) on a blockchain (Ethereum, Cardano, and others) by dint of an STO (security token offering) launch. In turn, these originated tokens may be of different nature and purpose. Thus, they can be equal to: 

  • Equity in real estate; 
  • A share in a company that holds the property; 
  • A claim secured by real estate; 
  • The right to a part of the profit generated from the real estate ownership, and others. 

Any type of real estate can be tokenized, both residential and industrial. As of now, there are several property tokenization mechanisms, among them are: 

  • Ownership of real estate through an equity interest in a specially created (vehicle) company; 
  • Equity in a real estate fund; 
  • Equity participation in a real estate property; 
  • Investing and lending for real estate development; 
  • Creation of tokenized real estate investment funds. 

The technology itself is extremely promising and experts worldwide confidently call it the tech trend of the future, which will redraw the whole global investment market. It will relieve investors from hateful paperwork and expand the pool of possible investors as such. 

Advantages of Real Estate Tokenization 

Tokenization of any kind of asset is a promising and offering great opportunities tool. If we talk about tokenized real estate advantages, we can specifically highlight the following points: 

  • Overall flexibility   

One of the notorious advantages of tokens is their flexibility. When a property is tokenized, it can be digitized for later fractional sale or exchange. This also allows investors with little capital to enter the market. That is even an entrepreneur with little funds can invest in a tokenized property and become its partial owner obtaining dividends from the potential earnings. 

  • No geographical boundaries or restrictions 

Tokenization of property tools literally erase geographical boundaries in the investment world, thereby expanding the pool of investors and potential targets for funding capital. All activities take place in the digital format, thereby providing the opportunity to invest in tokenized real estate on a global scale at any time convenient for the entrepreneur. 

  • Cost optimization 

When tokenizing a property, it is possible to significantly reduce the typical organizational costs of conventional real estate investing, such as notary fees and bank fees (paying for your property in cryptocurrency helps you bypass them). Plus, the procedure is completely automated and eliminates redundant red tape formalities. 

  • Possibility of high diversification of the investment portfolio 

Nowadays, to participate in a luxury real estate investment project, for instance, an investor needs to have quite large funds at their hands and pay out a big amount at once. However, thanks to tokenization, it will no longer be necessary to buy the entire property and give a large amount at once, because it will be divided into tokens. This or that property can be split into hundreds or thousands of tokens with a designated value. That is, you can purchase only a small part of this or that house, office, warehouse, etc. It, in turn, means that you can do it with several properties, thereby adding variety to your investment portfolio. 

  • Exclusion of intermediaries 

Thanks to smart contracts prepared in the process of tokenization of assets it is possible to excrete the intermediaries such as notaries, brokers, etc. 

Smart contracts are computer code that exists in a blockchain that ensures the automatic execution of agreements between users without interference. Because smart contracts operate in a blockchain environment, these algorithms cannot be changed once launched. 

Final Thoughts 

Tokenization is a fairly complex process from a legal and technical standpoint. Companies/entrepreneurs interested in launching tokens upheld by real estate face a wide range of challenges in preparation, designing, originating, and promoting real estate tokens. This is why those who have the intention of starting their token project should trust professionals who have the necessary skills, knowledge, and resources to do so. ClevverCrypto is the new brainchild of our company which was created for this very purpose — to provide professional qualified assistance in launching your token campaign. Visit our website to find out more. If you have any questions, please, be free to contact us immediately. 

DISCLOSURE NOTICE: Any legal or tax information in this communication (including any attachments) is for information purposes only and not intended to be used as tax or legal advice. The author is neither an Accountant nor a Lawyer and cannot be made liable. Please, contact your tax accountant or ClevverLegalServices LLP for individual consultation.