Real Estate Investing Through Security Tokens
Real estate being the largest global market in the world, is currently valued at approximately $200 trillion which is 33 times more than the global gold market. Small improvements in the real estate market can have tremendous economic value. It’s hard to find a segment that has not been influenced by Blockchain Technology and real estate couldn’t escape the blockchain disruption either.
In this article, we will look at how blockchain technology can be leveraged to invest in real estate through STO solutions.
What is tokenization and how can one invest in real estate?
Tokenization refers to the digitization of real-world assets. With the help of Blockchain in Real Estate, digital assets can be programmed to represent ownership rights, which can be sold as “security tokens”. Through the use of robust smart contracts and technology, security tokens create a standard trade between buyers and sellers.
The main difference between security and utility token is that security token holders are entitled to ownership rights and are considered as “securities” by most financial regulators whereas utility tokens function as coupons and give holders no right or stake in the asset.
How Blockchain Technology Is Improving Real Estate Investment Market
Real estate being the largest global market in the world, is currently valued at approximately $200 trillion which is 33 times more than the global gold market. Small improvements in the real estate market can have tremendous economic value.
Let’s explore some possible improvements in-depth:
- Increased Liquidity In Real Estate
Blockchain technology in real estate adds liquidity in the intrinsically illiquid market. With Security Token Development, it is easy for the owners of expensive properties to quickly sell their assets without affecting the price. Miniscule investors can diversify their global real estate portfolio with a small ticket.
2. Reduced Intermediaries
With blockchain, the number of intermediaries is reduced almost to naught as most of the processes are automated and minimal human participation is required. This substantially eradicates the fees and charges paid to the intermediaries, which will ultimately result in significant cost and time savings.
3. Enables Fractional Ownership
Blockchain real estate development would lower the barriers to real estate investing by allowing fractional ownership. Typically, investors would require a significant amount of money upfront to acquire property but tokenizing ownership enables “fractional shares” which lowers the capital requirement. Hence, it would be possible to hold half or even 10% or 20% of the land.
4. Diversifies Real Estate Portfolio
Diversifying investments minimizes the risk. Real estate investing through blockchain enables the ability to diversify the investments not only by region but also by allowing the investors to spread their money in different categories of real estate; be it residential, multifamily, commercial, or cash flow properties. By tokenizing ownership of a real estate, investors do not necessarily have to own 100% of a single property but they can own 10% of a property in 10 different cities around the globe.
5. Irrefutable Proof Of Real Estate Ownership
The digital history of transactions held in the blockchain ledger enables the investors and stakeholders to prove their ownership beyond any doubt. This technology leaves no room for fraud attempts. It shows the exact history of ownership and makes it impossible to falsify transactions or con the investors.
In the next part, we look at some of the ongoing projects who used Blockchain real estate development by converting them into security tokens.
Current Projects that seek to Tokenize Real Estate
Polymath makes it easy to unlock the blockchain to tokenize and trade assets. It is dramatically lowering the barriers by providing STO Solutions that represent real-world ownership of assets such as real estate. It is an ecosystem that comprises KYC/AML, broker-dealers, law firms, and exchanges that facilitate the compliance of security tokens.
Polymath had partnered with BlockEstate, a real estate fund in an attempt to use predictive analytics to manage its real estate portfolio. Unfortunately, they decided to shut down the project which would have been the first instance of a real estate property represented by the ST-20 Security Token protocol.
A platform designed for tokenizing private investments, Harbor seeks to leverage blockchain technology to record, maintain, and transfer ownership of investments including real estate. It provides a decentralized protocol to establish and maintain standardization for tokenized securities. Announced with much fanfare, Harbor’s STO Development Services for a real estate project (Hub at Columbia REIT) had collapsed.
Security Token Offering Development by ReitBZ is the first of its kind for the Brazilian real estate market. It combines local expertise and global reach to offer the best investment opportunities for its investors. They claim that real estate is a flourishing market in Brazil and after a period of economic lockdown they have started to recover and it is the right time to invest in this asset class.
Though blockchain technology could have a drastic effect on the real estate industry, it is still in its early stages and full adoption and adaptation across the real estate industry come with its own set of challenges like regulatory uncertainty and general lack of understanding in the budding industry as many are yet to fully explore its potential applicability.
Though it is clear that this emerging technology has the potential to disrupt the real estate industry, there is a long road ahead before it reaches maturity. We see a strong promise and future regarding its implementation and proper regulation with time and efforts and before we know, we would be buying our new house on the blockchain.