How Tokenized Real Estate Assets is Redefining the Market

If we’re being honest, the phrase ‘Blockchain’ is appearing everywhere and anywhere. Even the daunting intricate sector of real estate has been infiltrated by this technology in an effort to solve the industry’s inherent issue.

The real estate market has grown significantly over the last decade, owing mostly to an increase in investment. Nonetheless, property investing has long been seen to be a privilege reserved for institutional investors or high net worth individuals. It has also lagged in terms of liquidity, automation, and regulation. However, owing to blockchain and, in particular, the tokenization of real estate, all of these and many other related obstacles have been effectively addressed.

One of the primary use cases of blockchain in real estate has been the tokenization of real estate property, which has produced spectacular outcomes. It enables asset and fund owners to raise cash more effectively and gives investors almost limitless access to private real estate investments, as well as improved liquidity, more transparency, and other eye-catching perks.

Interested to learn more about why tokenization of real estate is redefining the real estate market? Stick with us in this article as we will explore how real estate tokenization works as well as the value it provides to issuers and investors.

What does Asset Tokenization Mean?

Real estate tokenization falls under the category of asset tokenization wherein it is the process of converting an asset into divisible and fungible tokens on a blockchain. These tokens may subsequently be traded at the option of owners.

Asset tokenization functions with divisible tokens reflecting a portion of ownership interest in an underlying asset. In the context of real estate, this may imply that if a residential property with the value of RM1 million is tokenized into 100 tokens, each token represents a 1% ownership share and is valued at RM10,000 in that property.

Advantages of Real Estate Tokenization 

1. Lower the Threshold of Entry

A high threshold of entry is probably the primary issue for anyone looking to invest in real estate. To date, real estate investment remains to be one of the asset classes that require 

Tokenization employs fractionalization to lower real estate's exorbitant expenses. Unlike conventional methods of purchasing real estate, which require investors to acquire the whole property outright, tokenization allows investors to participate in smaller portions of the same property, boosting accessibility to invest at a cheaper cost. As such, tokenization significantly decreases investment costs, making it more accessible to a larger spectrum of investors. 

2. The Absence of Intermediaries

Tokenization is less expensive and more efficient since blockchain technology automates procedures which results in absence of intermediaries. Tokenization, for example, does not include agents and brokers who operate as intermediaries in real estate transactions. As a result, real estate tokens are less expensive since they do not include the expenses of long document reviews and layered communication. Alternatively, smart contracts built on blockchain's immutable structure reduce fees and expenses associated with preparing huge amounts of paperwork.

3. Increased Transparency and Security

Blockchain is capable of documenting every transaction that occurs on it. Every time a single token is used in a transaction, all parties are made aware of it. As a result, investors may see the token's history, price, and other transaction data at any time.

Furthermore, thanks to the immutable nature of blockchain, each recorded transaction on a blockchain is incapable of altering its records. This would prevent the potential issue of forging ownership or transaction of a particular property by a potential fraudster. 

Conclusion

Real estate tokenization has the potential to completely transform the way people invest in real estate. Tokenization, in principle, considerably expands the pool of investors with access to real estate assets. Tokenized real estate saves expenses and promotes diversity by using advanced blockchain technology and fractionalization.

To attain its full potential, tokenization must overcome various obstacles, including regulatory concerns and volatility associated with digital real estate tokens. Tokenization's success may be determined by a number of legal and practical considerations. As a result, property owners should seek the advice of industry specialists early in the tokenization process to reduce the risks and costs involved with managing the novelty investment.

When it comes to consulting industry experts, Finnax can be your go to obtain advice and strategy to structure a real estate tokenization deal that works best for you. Being recognized as the region’s pioneer in the real estate tokenization sector, Finnax offers solutions to unlocking liquidity for multiple types of real estate with the support of tokenization technology as well as the capability of listing these security tokens on regulated exchange, making it a secured and a speedier method to reach more potential investors.

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