Blockchain technology could make it easier to own real estate. In the real world, owning real estate is not easy because of complex procedures including a lot of paperwork and other legal necessities.
However, the virtual world can make it easier. Owning real estate in the digital world does not require paperwork. All the data is immutable, secure, and transparent, as it is stored on blockchain.
How Tokenization of Real Estate Works
Tokenization has the potential to transform how real estate ownership works. Complex procedures have turned easy. The buyers can perform the transactions immutably.
Smart contracts are used to provide all the details related to the contract. The coded algorithm shows whether the conditions of the contract are fulfilled. For example, smart contracts can transfer in a land register without any human role.
For fractionalizing the NFTs ERC 721 tokens are used. It executes a set standard set on the Ethereum blockchain which is associated with smart contracts. It keeps track of transactions. These tokens are designed to articulate the security and protection of the transfers made.
Real estate tokenization works like crowdfunding. The real estate is divided into fractions. Each fraction is stored on the block in the blockchain with the help of smart contracts. The user who owns that block will become the owner of the part of real estate. They will be responsible for the losses and profits made.
Benefits of Real Estate Tokenization
Tokenization makes real estate ownership cheaper and inclusive. It creates a win win situation – those who have high value properties no longer have to wait for a wealthy buyer; those who want to invest small amounts in real estate directly can now do so. With tokenization, the asset is fragmented and the price is thus lessened for each fragment. This way the asset can be easily invested within the period. This is all done on blockchains so the record is secure and transparent.
Any type of real estate can be tokenized – residential or commercial. Tokenization not only saves a lot of paperwork but also enhances the affordability. Even the expensive properties can now be owned as it is cheaper to own fractions.
The blockchains included will result in fast action and quick transactions. It also limits fraud as the data is visible and it can be manipulated. There is no limitation on the working hours as well. The transaction, buy and sell can be made any time.
The problem of lack of liquidity is also solved due to tokenization. Now the real estate is fractionalized, thus, increasing liquidity. Rather than selling the whole property, the fractions of the property can be sold easily. Small-scale investors are also facilitated this way.
Tokenization of real estate can enable ownership in a safe, secure manner with accessible data. However, it also requires licensed platforms where management of the security token offerings (STO) can be regulated. The process is complex. Other than this, tax regulations on crypto and regulatory issues are also there.
Summary
Real estate could become accessible to more people. Cumbersome legalities and affordability are the biggest challenges in real estate ownership and tokenization of these assets can help
Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.
Source: https://www.thecoinrepublic.com/2023/09/24/real-estate-tokenization-what-is-it-and-what-are-the-benefits/