Most senior management understands that blockchain technology can revolutionise the majority of industries. We are set to see many assets being tokenised in the next few years. Many astute investors, realise that tokenised real estate will lead the way. In this article, we take a look at how investors can participate in this newly created market.
What is tokenised real estate?
In simplicity tokenised real estate is putting real estate into many smaller chunks that can then be sold to several investors. Each token will give investors equal ownership of the underline investment. This means a token holder is able to benefit from when the underline asset appreciates in value as well as having proportional ownership of any income generated.
How does tokenised real estate work?
Tokenised real estate works according to the rules set out in the tokenomics section of the report or whitepaper. In the tokenomics section it will fully explain to any prospective investors the rules of engagement. This means how the underline investment will work.
The vast majority of real estate tokens work by splitting up a property and offering investors equal ownership of the property pro rata to the number of tokens that they hold. However, this isn’t the case for all tokenised real estate. It is possible to tokenise whole developments and even whole development companies through tokens. In the upcoming years we will see many innovative ways to invest in real estate via token offerings.
What are the benefits?
Tokenised real estate offers several benefits. Our recent article the token revolution and its effects on real estate outlines these benefits in greater detail. The key benefits are as follows:
Buying real estate is expensive and property development is more costly still. Tokenisation brings down the cost of ownership significantly. Not only that, tokenisation of real estate allows for increased speed of buying and selling.
Tokens allow for fractional ownership of real estate. But isn’t this just like crowdfunding? Tokenisation of real estate is different as the decentralisation that blockchain offers removes the need for a trusted intermediary. Additionally real estate tokens can be placed into many more units than tradition property crowdfunding platforms. This is because there are less fees to buying or selling as there is less red tape due to information being held on the blockchain.
Globalisation of real estate
Through tokens anyone can purchase real estate. There is no need to come to the country in person to sign any legal documentation.
The technology also facilitates anonymity so for overseas investors there may be reduced fees or taxes. As an example, an overseas property investment is subject to a higher stamp duty rate. However, with tokens there is no stamp duty to pay after the initial property registration as it is impossible to know who owns each token. However, as this industry matures there are likely to be additional rules put in place.
Most tokens are more likely to change hands at fair market price. This is good for commercial property that often sells at a discount to its real value due to liquidity issues.
For tokens that are investing in multiple real estate assets, the tokens will trade at a premium to their underlying assets. This mirrors equities such as REITs that often trade hands at a premium to the underlying assets in anticipation of future profits.
Faster and cheaper transactions
Tokens allow for faster and cheaper transaction fees. Tokens are also likely to be cheaper than equities, as equities typically have large spreads in addition to dealing fees.
As the purchase price can be far lower, tokens allow for diversification as you can have fractional ownership of several properties in different locations.
Asset backed security
For crypto enthusiasts, tokenised real estate offers an asset backed security. This differs from most crypto coins which have no underline security. Tokens such as Bitcoin work on scarcity to drive up the price.
Capital raising can be made easier for developers as tokens allow for thousands of investors. This is something that is not possible through traditional ownership methods.
How can I get involved?
Tokenised real estate is a new market so options at present are a little limited. Although the World Economic Forum, The World Bank and many other international organisations believe that this is going to be a massive market in the future.
In America, a company called RealT leads the way. They offer tokenised real estate in various apartments. Whilst in the UK Esper Developments is the first property development company to be funded exclusively through tokens.