Despite the emergence of so many asset classes in today’s world, real estate takes the cake. The disruptive blockchain technology has found its way into the real estate industry too. The biggest challenge to their rise would be to overcome the regulatory hurdles. It also suffers from illiquidity and a lack of transparency. However, tokenization of Real Estate can be a game changer.
Meaning of Real Estate tokenization and its associated benefits
Real Estate tokenization refers to the division of an asset into fractional shares among a large group of investors. It has a couple of benefits as fundraising becomes cheaper and more people can get access to buying and selling of real estate without facing any barriers to entry which would democratize the entire process. It also removes the role of intermediaries ensuring transparency.
Liquidity is also assured and there is an opportunity to exit in times of unfavourable circumstances. Efficiency and trust are ensured through the presence of smart contracts.
It holds the advantage of being a safe and reliable form of investment as it is less risky when compared to cryptocurrencies that are highly volatile and depend on speculative tendencies. However, in tokenization of Real Estate, stabilization measures are implemented by ensuring that the value of the security tokens offered to the investors does not deviate below the underlying NAV (Net Asset Value) of the corresponding property. In traditional security markets, real estate tokens are thought of as securities that just exist in a digital format in the form of a smart contract sitting on a blockchain network.
However, it requires cooperation with the regulatory authorities functioning in different authorities. During a downturn, the regulatory bodies should protect the investors from facing losses.
What are the conditions that Real Estate Tokenization must create for mass adoption?
Hence tokenization of real estate must create a situation which offers different options such as hybrid ownership, the offer of a debt or a loan and access to a regular source of income Encouraging institutional participation would lift the credibility of Real Estate tokenization. Hence, concerns regarding the source of funds, the location of the assets and the marketplace for exchanging tokens need to be addressed quickly. A well-functioning ecosystem is needed to make real estate an investable asset.
While changes in the real estate market conditions are inevitable owing to global dynamics, investors can take advantage of lower pricing in certain markets. Despite the blockchain technology cutting down on the major costs involved in processing, significant costs would have to be borne for consulting experienced professionals.
Hence, it requires the presence of an organized marketplace with adequate interest from investors who are interested in the scope of blockchain technology. While regulations are needed, it needs to be streamlined and the restrictive ones need to be removed.
It should be fair for all the different stakeholders involved in the network and no single party should take advantage of any loopholes. The regulatory framework is necessary for protection as well for enablement.
Results to be received from Tokenization of Real Estate
Once the concerns of every party are considered and the framework has been officially implemented, it will create a real estate world which assures adequate liquidity, complete customization and high efficiency through the operation of smart contracts. This will lead to mass adoption by every investor in the real estate industry.
While there are obstacles to face, the potential offered by tokenization of real estate is immense that it cannot be ignored at any costs.