Real estate is the most liquid asset that needs more entailing yet long transaction processes with significant capital commitments. Everyone must be wondering how to keep real estate transactions safer if they continue to occur digitally. Things can become easier to manage with the real estate assets digitization. The entire process involved is known as “Real Estate Tokenization.”
Recently, tokenization is gaining traction in the real estate sector, and most of you must have heard the same term. Still, most of you must be unaware of how tokenization is rapidly growing in the financial industry that allows tokenized real estate investment. It is backed by the assets and securities involved in the real estate world.
Dig into the blog to get an entire overview regarding real estate tokenization.
As a part of different digital interactions, tokens are used in various forms, including online banking. When you thoroughly check your bank statement online, you will notice that every transaction has a unique number, distinguishing the transactions from each other with the payee and the amount. The number is known as a token if we consider it in the digital language.
What does real estate tokenization mean?
Real estate tokens include the number of representative tokens that work to distribute the entire property ownership. At the same time, tokenization is the process that one follows to transform real estate assets into different virtual real estate tokens. Further, those tokens are then sold online, where the buyers of that particular real estate token then own part of an asset.
Every real estate token is a direct ownership representation of an asset. During the tokenization, these assets are divided into a company owning real estate, participating in tokenized real estate investment, or anything else. Hence, with tokenization, property purchasers can handle the transactions digitally with the real estate tokens instead of the traditional way of handling paper documentation.
Tokenization aims to protect real assets, which is why those are known as security tokens. Same as securitizing an asset means the division of the same into shares, tokenization is known as splitting the assets into real estate tokens that also represent a particular share of the underlying asset.
Problems that Real Estate Tokenization can Solve
Liquidity of Real Estate
Tokenization resolves the liquidity of the assets, which is the biggest problem of real estate. Traditionally, various parties were involved in the legal transfer of assets. However, today, tokenization simplifies the buying and selling process of properties. It eliminates the middleman and transfers the ownership from investor to investor.
Proof of Ownership
Usually, the legal ownership is displayed through the legal documents showcasing the new investors’ ownership rights. However, a distributed ledger is shared regularly and synchronized across different sites in tokenization. Different people also access it. Any changes made in the ledger are copied for the participants within seconds. Further, every transaction is then sent and validated to eliminate any issue arising with different ownership claims.
Easier property search
Another issue that is easier to solve with tokenization is the quick search for the property where you are investing. If the real estate assets are tokenized, it is easier to list them in one centralized marketplace. However, it also makes things easier for the investors because the searches for potential investments are now made in one location.
The distributed information where real estate tokens are stored not only helps eliminate the issue with ownership proof but also improves the transparency in the real estate market. You can achieve complete security by digitizing the assets along with high transparency. Tokenization is usually backed by blockchain technology, so undoubtedly, blockchain is a proven technology one can use for security purposes.
With the real estate assets tokenization, the market conditions are changing rapidly. Now the access is only limited to the investor’s group, but the investors can move their tokenized real estate fund, and asset owners can manage their equity more effectively.