Transforming the Real Estate Industry Through the Tokenization Era
Understanding the Newest Real Estate Industry Revolution
The world of real estate is changing as we know it, and it’s all the result of a single process wrapped up in a single word—tokenization.
The tokenization revolution that the real estate marketplace is now experiencing is taking everything we know about blockchain technology and applying it a new, unique way—to an industry we thought we knew everything about it.
Ready or not, however, the tokenization of the real estate industry is happening—in fact, the tokenization model has already proven its efficacy time and time again.
The most relevant example? The successful sale of nearly $2.2 billion worth of real estate assets from Texas to New York to California via a Texas-based commercial real estate marketplace.
A new wave of real estate is coming—one where efficiency, customizability, and liquidity will never look the same. But what exactly is tokenization and what can it bring to the real estate industry that we might not immediately expect? Continue reading to learn more about this new wave of technology that’s changing the real estate industry for good.
What Exactly is Real Estate Tokenization?
Before we’re able to truly provide a broad look at how tokenization is altering the real estate industry as we know it, it’s crucial to first understand precisely what tokenization is—especially within the context of the real estate industry.
Tokenization, to simplify the definition, is a new term that’s used fairly often to describe cryptocurrency fundraising where investors exchange cryptocurrency for tokens. In other words, tokenization is a real, intangible way for agents to securitize actual, tangible assets.
By this, we mean that tokenization is a way that people are now creating a digital asset to represent a single property (or a portfolio of properties) based on a blockchain-based system. A blockchain system is, by definition, a decentralized, distributed, and most often public, digital ledger that consists of records called blocks—these blocks are used to record transactions across networks.
This means that tokenization—in the context of real estate—is the process of representing a partial ownership stake in a real asset using blockchain-based security tokens. This means that efficiency, customizability, and liquidity through tokenization can take a property to virtually anyone on the market—in other words, anyone can own a piece of property that’s virtually being offered.
How Tokenization is Changing the Real Estate Industry As We Know It
Tokenization in the real estate industry through blockchain is substantially changing and altering the landscape of real estate as we know it—especially when it comes to property investment, operations, sales, and even development.
In fact, tokenization and other new technology that exists (or soon will exist) in the real estate industry is affecting (and will continue to affect) the marketplaces in the US, europe, and other countries. It’s consistently changing regulations, cutting middlemen expenses, and even adding new buyers to marketplaces that they’d previously not had access to.
Experts say that we can expect the real estate industry to continue transforming and revolutionizing because of tokenization technology—in more ways than one.
Tokenization Will Allow for Greater Fractionalization & Liquidity
All in all, as it relates to investing in property, tokenization will allow for greater fractionalization of owner equity and improve the liquidity of property. Let’s start with fractionalization.
This term refers to the division of owner equity into smaller pieces that have been divvied up with the intention for selling. Traditionally, commercial real estate has had a much higher barrier to entry because there’s typically a substantial amount of upfront capital needed to invest—but now, with tokenization leading to the encouragement of further fractionalized property, assets are becoming democratized, and the doors are cracking open wider than ever for smaller investors without a large amount of capital.
Further, when a property is tokenized, an asset is unlocked to more than just the local pool of investors—a global market is revealed, meaning secondary markets can add to the liquidity of a property. As we know, liquid assets in a marketplace tend to fetch a premium price—which means that tokenization can, effectively, increase underlying asset value.
Tokenization Will Allow For Individuals to Access Additional Capital
By removing the need for physical assets and inputting the new standards for cryptocurrency, tokenization allows for owners and developers the chance to put forth smaller investment denominations. This touches on the point we made earlier about fractionalization, however, it also expands distribution to a larger, more diverse investor group than ever before.
Tokenization Encourages Improved Transparency & Better Price Discovery
A secondary market that is primarily digital enables real-time pricing information that can be accessed by anyone, anywhere—effectively, this improves overall transparency within the real estate marketplace. Blockchain-based systems enable restrictions, rights, and data that are associated with a tokenized digital asset, which means details—quite literally—will have to be spelled out transparently.
Tokenization Will Automate Processing
Because of tokenization, real estate processes will have to begin happening in real-time (just as we mentioned above). Because of this, management processes will need to happen in real-time, too, meaning that the entire process (from start to finish) will have to happen faster, and more efficiently, than ever.