Real estate tokenization has made tremendous progress in the industry and has been getting the twin advantages of friendly regulations and more user adoption. It enhances the functioning of the industry by improving efficiency and decreasing costs.
What Are the Various Expectations in Tokenized Real Estate?
- All the properties will be represented on a distributed ledger on an immutable blockchain network in the future.
- The benefits include more liquidity, the elimination of intermediaries, and better transparency.
- Paper-based title records will be digitized soon.
- Strong resistance will be present against market manipulation and extreme price changes.
- The real estate market must open up for small investors and should not just be restricted to wealthy investors alone.
- The tokens will contain all the details about the ownership history, facilities provided by the assets, and financial rights of the investors.
- The sale of property and raising of capital can be tracked on a real-time basis.
- Digital tokens will enable instant fund settlement, less counterparty risk, and can be traded 24×7/365.
The Typical Process Involved While Tokenizing a Property
- Structuring the financial deal like the supply of tokens, its price, and the distribution strategy.
- Issuing the security token on the blockchain network.
- Managing the activities of investors.
- Post-tokenization management comprises the distribution of dividends and shareholder voting. It continues till the token gets matured or is redeemed by the investors.
- Listing the token on the top crypto exchanges and secondary markets in the industry so that trading can be done by the investors through an over the counter mechanism.
The Different Hurdles to Overcome in Real Estate Tokenization
- The unclear regulations as security tokens are not recognized in every part of the world leading to inconvenience for the investors. New securities laws will emerge soon with more adoption of blockchain technology. This can impact the trading, distribution, and holding of security tokens.
- Maintaining the safe storage of tokens against any hacking and phishing attacks is a big challenge. If the tokens get stolen, the investors will lose their funds without any chance of recovery. Hence, sensitive information like users’ data and their finances must be safeguarded with top-notch security measures.
- The potential of tokenization cannot be fully fulfilled in case liquidity in the cryptocurrency exchanges where they are traded happens to be low. This will discourage investors to put their money in tokenized properties and they will instead prefer to invest in Real Estate Investment Trusts (REITs) instead.
The Crucial Aspects to Consider Before Investing in Tokenized Real Estate
- The business model includes the financial structuring of the token and the custodian of assets. The tokens must be easily sold on tokenization platforms or token exchanges
- Integration with different platforms for providing a better user experience through an upgraded technical infrastructure. It will depend on the regulation to be followed and the products that are offered.
- Cybersecurity measures as the risks of financial crimes are high. Some steps like end-to-end data encryption, cold wallets, multi-factor authentication, and anti-DDoS protection can be taken.
- Complying with KYC (Know Your Customer) and AML (Anti-money Laundering) is a must to maintain a high level of authenticity.
- Following taxation laws for tokens that may be encoded in the robust smart contract. The rates will depend on the value of the tokenized assets.
The Various Applications of Tokenized Property in the Future
- It can be used by investors to purchase leased property affordably. Buying a home involves a significant amount of investment. Tokenization provides the benefits of fractional ownership to investors. They also get access to cash flow, dividends, and profit-sharing rights from the property.
- Co-working spaces have increased massively in urban areas. Many workers can use the infrastructure leading to better resource utilization and reduced costs. It leads to better community management. Financial benefits can be realized from the appreciation in the value of the property. Co-working spaces are in high demand by startups, freelancers, remote workers, and entrepreneurs.
As seen above, Real estate tokenization is getting wide adoption these days. It can create a new financial system giving more transparency, scalability, interoperability, and security to the users. The existing financial institutions have to make massive changes in their business operations, processes, and infrastructure to adapt to this new trend of tokenized real estate.
Though there are some major obstacles involved, better collaboration between blockchain developers, regulatory bodies, government agencies, and banks can sort out all these issues. The token economy will witness greater growth and thrive in the future.