Real Estate Tokenization
28 November 2022
One of the more interesting applications of tokenization has been fractional ownership in the real estate space. Many companies now are offering fractional stakes in everything from: short-term rentals, to single family homes to commercial real estate.
What is tokenization?
Tokenization refers to the process of creating a tokenized digital twin for any physical object or financial asset. The token represents the physical counterpart, collectively managed by a distributed ledger.1
- Asset Token - A general term that can include any assets, such as commodities, artwork, real estate, or securities.
- Security Tokens - A specific type of asset tokens that are classified as securities under financial market regulations. The interpretation of what constitutes a security, however, is subject to local legislation.
Why tokenize real estate?
Real estate is one of the largest asset classes worldwide in terms of market capitalization, however, real estate ownership is not open to all members of society. Many low-income households can never afford to buy real estate. To receive a loan, buyers must have a positive credit score, a steady and well-paid job, or a collateral of other assets. Furthermore, the real estate market is highly fragmented and centralized.
Real estate is an illiquid asset, which means that buying and selling the asset is a lengthy and bureaucratic process; ownership does not swap hands quickly… tokens could be easily fractionalized, which means that real estate owners could sell off fractional shares of their apartments. While selling shares of a property is not a new concept, tokenizing real estate would be the next step in the automation process, making it more efficient to issue and sell these assets at a fraction of the costs that were needed before.2
How does tokenization work?
Fractional and frictionless real estate investing