Although the process of tokenizing real estate is still relatively young, many companies already provide solutions with substantial advantages for investors and token holders.
A token is a digital interest in an asset built on the blockchain. Tokenizing can be done with almost any asset. When real estate is tokenized, a property serves as the token’s underlying asset. Tokenization is typically done in order to sell, purchase, or invest in real estate that has already been built. The rights that the token’s owner enjoys depend on what it is used for.
Tokenization of Real Estate
Real estate tokenization is a technique used to represent a portion of an asset’s ownership interest using a black chain-based token; the asset in question can be either a utility asset or a security asset.
By issuing tokens through blockchain platforms, tokenization actually enables owners of assets or funds to raise capital more effectively. Other investors may buy these tokens, which represent a specific number of shares for a particular real estate asset.
An STO, short for security token offering, is the sale of a security token at its initial price. STO is often referred to as a tokenized asset offering (TAO) or a tokenized security offering (TSO). The sold tokens signify ownership of an actual asset. Each STO investor benefits from any future price growth in the underlying asset because they are all aware of its genuine value.
Here is what the STO process looks like:
- List the token on your chosen platform for real estate tokenization.
- Submit the property.
- Divide the property into tokens.
- Start marketing the listed property.
Oftentimes, companies will prefer building their own platform to ensure they maximize its value instead of joining existing ones. STO Pixelplex services ensure you have a tailored STO platform that fits your infrastructure and the specific goals of your company.
Tokenization for Sale
Let’s imagine that a property owner has made the decision to tokenize the sale of his property. He decides on a tokenization platform that is appropriate and submits an application with his personal information and a list of the key features of his property.
A valuation audit and independent appraisal of the property’s worth are required. The owner decides how many virtual portions of the property should be separated and how much each part should be worth after it has been tokenized. On the platform, the tokens are put up for sale.
Tokenization for Investment
The two most common uses of tokenization are to let investors make a small initial investment and get revenue from a property or to help property owners acquire money to renovate or rehabilitate a property.
Similar steps are taken when an owner chooses to sell a tokenized property. The token’s distinction is that it grants the owner a right to a piece of the asset’s rental income or fixed dividend payments rather than transferring ownership of the asset. However, the building may only be disposed of by the owner.
In order to raise money for renovations, the owners of a building in Detroit, Michigan, did just that by employing tokenization. An investment of $692,622 was needed, which was divided into 13,800 tokens at a price of $50.19 apiece.
Investments can be made in both completed and under-construction properties thanks to tokenization. This is how, for instance, the IndustriTech warehouse project in central Israel, consists of 11,000 m2 of contemporary, multifunctional logistics complexes of various sizes.
Benefits of Real Estate Tokenization
- The elimination of the middleman is the main advantage of tokenizing assets or property.
- As a result, buying and selling real estate for investors as well as raising financing for business owners becomes simpler and more affordable.
- Tokens can be instantly traded by investors for a very low cost.
- Owners or developers can raise funds through tokenization without the need for outside parties to finance the project.
- Real estate has historically provided great profits without a doubt, but entry is difficult.
- Because tokenized real estate assets benefit from both the high returns of real estate investments and the liquidity of the stock market, tokenization may be a solution.
- Since real assets support real estate tokens, they carry less risk than cryptocurrencies or initial coin offerings (ICOs).
- To ensure that the value of the security token does not fall too much below the property’s underlying net asset value (NAV), stabilization mechanisms can also be added.
Jurisdiction plays a significant role in tokenization. Different securities regulations and AML/KYC procedures are in place in numerous nations. As a result, before offering tokens to potential investors, token issuers must take into account the laws of all the countries in which they do business.
A token offering that is legal in the European Union could not be legal in the United States, and vice versa. There may be circumstances in which one nation sees a token as security while another adopts a totally different strategy. There are several nations where investors might not have any access to tokenized assets.
Due to lax regulation and a lack of authority, tokenization is currently a rather susceptible procedure. However, tokenization is fundamentally altering the real estate market as well as how we now invest. Real estate investment is no longer the exclusive domain of the rich. Transparency, inclusivity, and accessibility are all brought about by tokenization, and these attributes will all boost the real estate market’s growth.