Introduction to Real Estate Tokenization
Of late, tokenization has made its presence felt in the Real Estate industry. It is nothing but representing fractional ownership in your asset with the support of a blockchain-based token.
The tokens can give the holder ownership rights, access to equity, interest income from debt secured in the asset, or income received from cash flows generated by the asset.
Compelling Reasons to Tokenize Your Real Estate
It establishes sufficient liquidity –
The investment pool for tokens is highly global. Anyone who has a strong internet connection and meets the basic capital requirements can readily start investing.
Reduced investor barriers –
There is no requirement for investors to be accredited to invest in real estate. With increased liquidity, the freedom to participate in real estate becomes easier.
Highly programmable securities –
Tokens are operated by smart contracts that help in automating the operations bringing in greater efficiency and cutting down costs. It eliminates the need for manual intervention.
Extremely secure and immutable –
All the tokenized assets are protected with cryptographic encryption. The records are maintained safely through a distributed public ledger that can be accessed by anyone on the blockchain network at any time without any restrictions.
Factors to Take Into Account Before Opting for Real Estate Tokenization
- The true value of the tokens in the form of shares in an SPV (Special Purpose Vehicle) that owns the real estate and the right to access cash flows from a property.
- Compliance with the relevant security regulations imposed by certified authorities.
- Following the KYC (Know Your Customer) and AML (Anti Money Laundering) norms for validating the identity of the users.
- The distribution strategy of the tokens, tokenomics, tokenization ratio, and the cash flow to be entitled to discretionary and guaranteed token holders.
- Tax, auditing, and mortgage considerations.
Related: How to Tokenize Real Estate Assets?
Steps to Implement Real Estate Tokenization
Selection of the asset –
It is important to choose a widely traded asset for tokenization. You can get the valuation of the asset done by a reliable accounting or auditing firm. The holders of the token can be given either a share in equity or profits. Analyze competitors’ practices to deliver a well-rounded solution for your investors.
Analyze the business aspects –
Be clear on the value to be delivered by the token, the important sources of revenue, customer base, and other details of financing. A solid business model is crucial for successful tokenization.
Focus on token economics –
Determine the total supply of tokens and formulate a distribution strategy for sharing it to investors, creators, developers, and network users. Users will be mainly concerned with the token value and its demand. Hence, a solid transactional economy needs to be created between the buyers and the sellers.
Fulfill the technical requirements –
Use open-source smart contracts widely available online for managing your operations. You can outsource the coding part to a reliable blockchain development company. They will help you to create a top-of-the-line platform and run it quickly.
Comply with the legal regulations –
Since tokens are getting attached to real-world assets, there is a need to follow the laws set within a jurisdiction. Hire a well-versed legal advisor to help you handle legal regulations and other pitfalls.
Prepare a professional whitepaper –
Inform your target audience clearly about the reason for creating your token along with details about the technical specifications and the design. The whitepaper should be written by a person well-versed with blockchain technology and it has to be reviewed by a competent marketer.
Satisfy the interests of investors –
Make sure to consider the preferences of investors while pitching your project to them. Take into account their feedback.
Build a prototype –
The final version of your tokenized platform can be released to the public in the form of a prototype. Consider the suggestions given by both users and investors while incorporating the features. Once you have covered all the bases, the prototype can be launched successfully in the market.
Concentrate on expanding your network –
Utilize various digital marketing tools to expand your tokenized platform’s reach far and wide. Make use of PR, social media, paid advertising, influencer marketing, reward-oriented referral programs, email marketing to drive a positive buzz among your target audience. Share engaging content across different channels simultaneously to grab attention. Hire a marketing team to do this job.
Related: How to Tokenize Commercial Real Estate Asset
The Future of Real Estate Tokenization
Access to global capital would drive real estate tokenization far and wide. Hence, profitable investment opportunities get opened up for small investors enabling more equality.
However, the legal aspects and regulatory guidelines along with the red-tapism of the authorities have to be dealt with first. Governments and regulatory bodies across the world have the responsibility to establish an improved infrastructural and legal ecosystem for ensuring operational efficiency through real estate tokenization.
The presence of market transparency will ensure lower risks. Transactions also become cheaper and faster due to self-authorizing programs in the form of smart contracts.
Further visit: 3 Happiness Factors For Real Estate Agencies In Dubai
Real Estate tokenization can be a gamechanger if implemented properly as it can modify the market’s landscape. It brings a fair playing field for investors enabling deals to be signed directly without the presence of a middleman.
It can act as a valuable catalyst for market democratization. It can change the existing rules of asset management. Though globalization has improved economic opportunities for everyone, it has brought a lot of cross-jurisdictional and tax-related issues that can be solved effectively by novel legal entities by narrowing down the current gap between the powerful blockchain technology and the various real-world assets.
These hiccups will more or less be cleared in the days to come as the benefits offered by real estate tokenization outweigh its shortcomings.
Regulatory challenges and the uncertainty in the market are currently the biggest challenges that stand as a hurdle towards the growth of tokenization.
Hence, it requires a frank discussion between the different stakeholders such as investors, government authorities, companies, and regulatory bodies to reach a compromise and drive the way forward for managing assets in a better and more efficient way.