PropTech is the buzzword now due to the phenomenal rise of digitization. We are witnessing how property investment is becoming more structured, the launch of hybrid real estate tokens, and the growth of digital asset exchanges.
What Are the Highlights of the Tokenization of Real Estate Asset?
- An investor can take either short or long positions on his investment based on the prevailing market conditions. This gives him more flexibility and freedom in allocating his capital across different properties which is not provided by the traditional industry.
- Blockchain technology can collect different forms of data on a real-time basis from the property like the number of people living in a building, the total electricity consumed, the rent to be paid by the tenants to the owner or landlord, and the measurement of the energy footprint. This ensures a higher level of transparency and accuracy. It also facilitates the investors to take logical decisions based on scientific factors and not rely on speculation.
- Property-specific tokens can be purchased which gives more diversification and personalization.
- The tokens will contain all the details like the land use rights, cash flow, maintenance, and information about the infrastructure.
- Smart contracts will take care of the KYC/AML compliance requirements.
- It offers more liquidity, low operating costs, and real-time trading.
What Is the Progress Made So Far in Tokenizing Real Estate Asset?
- Many residential, commercial, and industrial properties are getting tokenized in different parts of the world on different platforms. The token holders get dividend and interest payments regularly.
- With a $600 trillion market cap for real estate globally, Tokenization can transform the industry completely. High illiquidity is a big challenge that needs to be tackled strongly.
- Even now, more than 90% of the homes are sold in the market by hiring the services of a property broker or an agent who has sound knowledge and experience. Tokenization of Real estate can boost financial inclusion and open up more asset classes for small investors.
- Many Real estate Tokenization platforms like Fluidity, RealT, and Propellr have emerged in the industry now offering services like investor verification, fund management, property listings, asset digitalization, security token management, and facilitating trading with adequate liquidity.
- Fundraising by offering real estate tokens have been gaining more capital in quick time.
- Blockchain is yet to be fully used in the Real estate industry which is generally slow in adopting new technologies.
- Apart from progressive legislation, it requires more computational resources to become a huge success in the future.
- Trading infrastructure needs to be established like a marketplace for trading digital tokens or securities and more secondary exchanges.
The Current Status of Tokenize Real Estate Property in Different Countries
- In Dubai, the land department is building a real estate blockchain network for recording all the lease registrations and property contracts.
- Black Manta Capital which is a Tokenization as a Service company, launched a $12 million security token offering where fractional ownership will be offered for various apartments in Berlin.
- MountX Real Estate Capital has partnered with Vertalo, a digital asset management platform for tokenizing 15 properties located in Mexico and Canada. Vertalo is an SEC-registered transfer agent.
- In London, the International Property Securities Exchange (IPSX) launched an IPO for trading single and multiple real estate assets.
- Mata Capital located in Paris tokenized properties worth over 350 million euros on the Ethereum blockchain network by offering them for sale to both domestic and international investors. It was one of the largest deals executed in Europe till date.
- Factora situated in New York tokenized different luxury properties in Manhattan.
- Smartlands, a crowdfunding company in the United Kingdom tokenized a Nottingham-based property by launching a Security Token Offering (STO).
- Tokeny solutions that provide liquidity for private markets in Luxembourg will tokenize some properties by forming a real estate fund in collaboration with WeInvest Capital Partners.
Prediction of Tokenization of Real Estate Asset in the Future
It is still a work in progress despite having massive transformative potential. Security tokens require uniform regulations to govern them throughout the globe to avoid any ambiguity and confusion in the mind of property investors. It can grow fastly if licensed platforms emerge for managing STO’s. Custody solutions are needed so that the investors do not lose their tokens. A retrieval mechanism needs to be established in case the security tokens get stolen or hacked. The tax structure also needs to be finalized for recognizing security tokens as a taxable asset. With tax laws not at all framed for Cryptocurrencies in some countries, some investors may be put in a better position than others leading to inequality which defeats the purpose of Real estate tokenization.
Going forward, tokenization of property will face stiffer challenges with red-tapism and regulatory uncertainty across all levels. If the concerns regarding the scalability of blockchain technology are sorted out, it can work on a larger scale and also optimize its potential.