Real estate assets are one type of investment that is most popular with many people. However, owning real estate assets also has its own challenges, such as high costs, complicated administration processes, and low liquidity.
Is there a way to solve these problems? The answer is tokenization. You can find out in this article!
What is Tokenization?
Tokenization is the process of changing real assets into digital assets called tokens. These tokens can be transferred, stored and recorded on the blockchain, which is a transaction recording system that is decentralized, transparent and secure.
With tokenization, real estate assets can be divided into small parts that can be owned by many people at a more affordable price.
How Tokenization Works?
To carry out tokenization, real estate assets must first be appreciated by an authorized party, such as a notary, lawyer or appraisal agency. Then, the asset value is divided into a number of tokens according to the ownership percentage.
For example, a house worth 1 billion rupiah can be divided into 100,000 tokens, where each token is worth 10,000 rupiah and represents 0.01% ownership of the house.
After that, these tokens can be sold to investors via a tokenization platform connected to the blockchain. Investors can buy tokens according to their abilities and desires, without having to buy all the assets.
Investors can also sell their tokens at any time on the secondary market, without having to wait for a buyer for the full asset. Thus, tokenization increases the liquidity of real estate assets.
What are the Benefits of Tokenization?
Tokenization has several advantages, both for asset owners and investors, including:
Improve accessibility
Tokenization allows people who do not have large amounts of capital to invest in real estate assets. With tokenization, investors can own a share of real estate assets at lower and more flexible prices.
Reduce costs
Tokenization eliminates the costs usually incurred in owning real estate assets, such as notary fees, taxes, brokers, etc. Tokenization also saves transaction costs, because it uses a more efficient and cheaper blockchain.
Increase transparency
Tokenization makes all information about a real estate asset, such as location, condition, value, history, and ownership, available on the blockchain for anyone to access. Tokenization also ensures that there is no manipulation or fraud in the token buying and selling process.
Increase diversification
Tokenization allows investors to own various types of real estate assets in various locations and markets, without being limited by geography or preferences. Tokenization also allows investors to allocate their portfolios according to desired risk and return.
What Are the Challenges of Tokenization?
Tokenization also has several challenges that must be faced, including:
Regulations
Tokenization is still in a gray area in terms of regulation, as it varies by country and region. Tokenization must comply with applicable regulations, such as property law, tax, consumer protection and anti-money laundering.
Tokenization must also obtain permits and licenses from the competent authority, such as the capital market authority, central bank, or other institutions.
Adoption
Tokenization still requires broader education and outreach to the public, especially those who are not yet familiar with the concept of blockchain and digital assets.
Tokenization must also offer added value and higher trust to investors, so that they are willing to participate in the tokenization platform.
Technology
Tokenization still faces technical challenges, such as scalability, interoperability, security, and standardization. Tokenization must use blockchain technology that is capable of handling large transaction volumes, interacting with other blockchains, protecting data and assets from cyberattacks, and adhering to industry-agreed standards.
What is an Example of Tokenization?
Tokenization has begun to be implemented in several countries, such as the United States, England, Switzerland, and others. Some examples of real estate asset tokenization are:
RealT
RealT is a real estate asset tokenization platform in the United States that uses the Ethereum blockchain. RealT allows investors to purchase tokens representing shares of rental properties in various cities, such as Detroit, Miami, and Atlanta. Investors can earn daily rental income and sell their tokens on the secondary market.
BrickMark
BrickMark is a real estate asset management company based in Switzerland that uses the Stellar blockchain. BrickMark has tokenized a luxury office building in Zurich worth 134 million Swiss francs.
Investors can purchase BrickMark tokens which give them the right to rental income and increase in asset value.
Liquidity
Liquidity is a UK-based real estate asset tokenization platform that uses the Tezos blockchain. Liquidity allows investors to purchase tokens representing a share of residential property in London.
Investors can earn dividends on a quarterly basis and sell their tokens on the secondary market.
Conclusion
Tokenization is a new way to own real estate assets using blockchain. Tokenization has many benefits, such as increasing accessibility, reducing costs, increasing transparency, and increasing diversification.
However, tokenization also has challenges, such as regulation, adoption, and technology. Tokenization has begun to be implemented in several countries, with examples such as RealT, BrickMark, and Liquidity. Tokenization is one innovation that has the potential to change the real estate asset industry in the future.
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Read also:
Understanding Leveraged Tokens
What is TokenFi (TOKEN)? Floki Inu Project for Asset Tokenization
What is the SPL Token Standard and Solana Token-2022
DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.
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