The real estate sector is going through a significant transformation as a result of the use of blockchain technology. The blockchain’s real estate tokenization has allowed people with a flair for real estate companies who previously couldn’t participate in it owing to a lack of cash to do so. Inherent problems with the sector, such as a lack of openness, trust, and speed, have also been resolved.
By offering you a trustworthy tokenization platform, a blockchain development company can help you achieve a hassle-free tokenization solution for your real estate properties.
This blog post has practically all the information you need to know about the real estate tokenization process, which solves the real estate industry’s liquidity problems. So let’s take a deep dive!
What are the various kinds of real estate tokenization?
The following categories are there to categorize the market for real estate property digital asset tokenization:
- Securitized assets on the blockchain include:
In 2022, this asset type will be in the lead among securitized blockchain assets. The most recent research states that real estate tokens will make up roughly 89% of all traded security tokens in 2022.
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- Fully tokenized assets on the blockchain include:
But these do not engage in active secondary market trade.
- Fully tokenized assets include:
These are being traded on secondary marketplaces right now.
How do Real Estate Asset Tokenization Services function?
Real estate has always been one of the least liquid asset groups. It’s because real estate transactions demand a great deal of property management work, legal skill, and significant planning.
By following these 5 processes, digital asset tokenization on blockchain assists in overcoming all these difficulties:
Phase 1: Deal structuring for Smart Contracts
Regulations depending on jurisdiction and the shareholder type are very important factors in a real estate tokenization asset. The terms of the tokenization are already set forth for both present and potential investors.
Phase 2: Asset Digitization
Security tokens are produced together with smart contracts that keep the typical details of the real estate transaction on the blockchain.
Four structures are employed to securitize the asset and convert it into an investment vehicle on the blockchain:
SPV Structure:
SPV stands for Single Asset Special Purpose Vehicle, and it enables qualified institutional buyers or accredited investors to take part in the transaction. Tokens serve as a representation of the shares of the real estate property in this framework.
Real Estate Fund Structure:
The token symbolizes units of the real estate fund, which operates similarly to a private equity fund. Only qualified institutional purchasers are permitted to purchase properties from this equity fund, which is invested in a portfolio of them.
Finance Structure:
This structure facilitates effective fundraising through the digital asset tokenization of real estate. On the secondary market, the tokens are offered for purchase by accredited institutional purchasers or regular investors.
REIT Structure:
Retail investors can use the Real Estate Investment Trust (REIT) structure, but it is more expensive to run than the others. Investors can create digitally enhanced REIT shares using REITs. Furthermore, REIT real estate token owners are entitled to operating revenue in the same ways as conventional investors.
The fundamental guidelines for smart contracts are established based on these architectures.
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Phase 3: Choosing a Technology
The choice of technology is essential for real estate tokenization. Following the selection of your asset tokenization services provider, you must decide on three crucial issues:
Selecting the right blockchain for your real estate tokens requires careful consideration. Transaction speed, gas costs per transaction, and the security of the blockchain are the three main criteria for choosing the blockchain to add transfer limitations to your real estate token.
The KYC/AML verification process must be finished by investors or token buyers on the platform where they purchase real estate tokens.
Primary or Secondary Marketplace: The platform must give users access to a market that will facilitate the sale of primary or secondary tokens for digitized assets.
Phase 4: Token Distribution
Token creation and distribution must be completed after the development and implementation of the smart contracts. Platforms for real asset tokenization may provide buyers with a range of payment options. Token distribution often takes place in these ways:
Primary Distribution:
These are the coins that have already been produced and given to investors in exchange for their initial investments in projects.
Secondary Distribution:
Tokenization is crucial for secondary trading since it increases liquidity. Tokens are listed for secondary trading on other exchanges so that other investors can trade them with other tokens or users.
Phase 5: Support Following Tokenization
The asset tokenization services provider offers post-tokenization assistance with things like navigating mortgage difficulties and legal problems as well as activity tracking.
Finishing it off
Real estate tokenization has the potential to revolutionize real estate investing by increasing liquidity in a largely illiquid asset class, lowering entry barriers for retail investors, and decreasing transaction costs. However, market participants currently face challenges related to clear market regulation, reconciliation with land titles registries, and the requirement for centralised reporting of transactions.