Real estate is considered to be one of the safest types of investments: If you ask anyone what the best investment is, he or she will most likely tell you to become a homeowner. Unfortunately, without some significant amounts of capital, many people may find this unachievable.
However, blockchains – and real estate tokenization – can make such investments possible. Real estate tokenization will change many rules on the market for property rights, investment in real estate, and raising capital.
This post will discuss how blockchain enables people who don’t have a lot of cash to invest in real estate by buying tokens representing fractional ownership in specific properties.
What is real estate tokenization, and how does it work?
If you’re not too familiar with the term, “tokenization” is the act of converting something into an equivalent form on the blockchain. Tokenized assets are pieces of digital property that are divisible and transferable. With tokenization, you can convert these pieces of digital property into smaller units or fractions of more expensive items like stocks or cars.
Nowadays, more and more people are looking for new ways to invest their money since traditional investments like stock markets or bonds are increasingly offering lower returns. As a result, many investors turn to real estate because it’s always had the highest return compared to other types of investments.
However, many people cannot afford to buy an entire property by themselves and engage with bank loans, making investing in real estate a real challenge.
Tokenization of the real estate market promises to change this since it enables fractional ownership and lower entry barriers into traditionally illiquid assets like real estate. Through tokenization, real estate can be converted into smaller units that are easier to store and transfer, more straightforward to assess the value of, more liquid, and more accessible. Blockchains have a lot of potential since they can track and transfer these smaller ownership units called tokens.
Why is this a good investment opportunity for both institutional and individual buyers alike?
There are many benefits to tokenizing real estate since it can help both individual and institutional investors.
Real estate tokenization on the blockchain enables people to purchase fractional amounts of property through virtual currencies with a lower entry barrier than traditional bank loans or investment firms.
Institutional investors can use the blockchain to quickly buy and sell multiple properties without the hassle of engaging with banks or brokers and having to pay commissions or fees for their services.
The benefits of blockchain technology in the real estate industry
Blockchain technology enables the token holder and the fund manager to use smart contracts to build trust between the token holder and the fund manager.
Smart contracts are self-executing digital agreements that directly connect people with businesses or other individuals, all of whom have a stake in ensuring that the transactions they carry out are as secure as possible – including making sure everyone has met the conditions of an agreement before it goes into effect.
Most importantly, with blockchain technology, transactions are transparent and verifiable to third parties. Thus, every aspect of these agreements is open to scrutiny. The transparency provided by blockchain makes it possible for investors to monitor their investments in real-time. Smart contracts enable investors to know where their money is and what it is being used for at all times.
What’s even more promising is that blockchain technology also creates new legal framework standards for tokenized assets, which means that those involved in real estate deals can be assured that financial regulators (and other authorities) will recognize and support these technologies in the future.
These are just some of the benefits that tokenization offers investors in real estate. It has the potential to change many aspects of property investments. It will create innovative opportunities for everyone by opening up the market to young entrepreneurs, new investors, small property holders, individuals who want to save capital during an economic crisis, or people who want to get into the real estate business.
How will these changes impact property rights?
The problem with property rights is that they’re often hard to verify. If you buy a house, for example, how do you know whether or not the person who sold it to you owned the land? And if they did own it, what are the terms of their sale?
All sorts of factors can complicate this, like different countries having different laws and regulations, or the possibility of taxes that need to be paid or liens on the property.
And even once these questions are answered, there’s always some chance that someone else will come along after your purchase and claim ownership over it – because maybe they didn’t realize that the land was private.
With the advent of blockchain technology, property rights will be based on tokens rather than deeds, leading to faster sales at lower costs, more accessible access to capital investments that were once reserved for institutions, and end-to-end transparency.
Imagine if you could buy a part of the Empire State Building or Rockefeller Center in New York City; it would be like buying stock, but with benefits that come from ownership. This is what real estate tokenization promises, thanks to blockchain technology.
The borrower no longer needs to take out a loan directly from a lender. As a result, the lenders lose their ability to influence loan conditions by selecting borrowers or setting interest rates.
With smart contracts, investors will be able to set all kinds of rules on how they want those transactions conducted – including time limits for each stage of an agreement. It won’t matter whether the transaction is between two individuals or involves several different parties. Blockchain will ensure that every transaction is safe and transparent throughout, protecting all participants involved.
What does the future hold?
Although all of this may sound like a distant reality, many experts believe that tokenization will happen very soon in real estate markets worldwide.
However, there are still some pending issues related to the regulation of cryptocurrencies in general, so it might take time before we can see how these new technologies genuinely revolutionize property rights and change our view of asset ownership.
But one thing is for sure: traditional models of investing in real estate are rapidly becoming obsolete because blockchain technology has opened up new opportunities for ordinary people to get into an investment market that was once reserved only for wealthy conglomerates.
