For any individual, real estate asset is the most important ‘Pillar’ among the 3 pillars of wealth building. It is said that the primary real estate asset, the family home, comprises of the 2/3rd of a family’s wealth. Taking into consideration such figures, imagine, what if you can make money by selling a piece of your property that is not being used?
Well, now you can!
Real Estate Tokenization: A Brief
Tokenization is essentially a modern innovation that rests its foundation on the blockchain technology. It is a process of dividing a piece, of any asset, into multiple shares and further raising the digital tokens on the blockchain platform.
In the case of real estate tokenization, the asset becomes a real estate property or a piece of land. Tokenization allows a physical property to be divided into digital tokens or shares. Each token represents a fractional share in that particular piece of property. Unlike utility tokens, a security token gains its value from the underlying asset.
Tokenization has opened up doorways to accessing a real estate asset in a way like never before. It has not only given investors a new tool to invest but has also given homeowners methods to capitalize on their property to the maximum potential.
A real estate security token can further be utilized to represent fractional share, equity in a legal entity that owns the asset, rental income associated with the property, and so on and so forth.
How Do Home Owners Benefit From Tokenization?
There are multiple benefits that homeowners can enjoy in exchange for tokenizing their property. Let’s consider a few scenarios in order to gain a better understanding.
Selling Fraction of Property
In today’s world, it is seemingly impossible to sell fractional parts of a single property. There are no viable tools available that allow any homeowner to make an extra source of income by renting or selling out fractional shares of the property.
Let’s say, an owner wants to renovate the living room of his house and needs extra income to do so. However, with the available methods, the owner cannot extract any income directly from the house. But by tokenizing his home, he can now find a way to generate the income needed for renovating right from his own house. How?
Hypothetically, the owner’s property is worth $100,000. Through blockchain tokenization, he can divide the property into 100 tokens, wherein each token is worth $1000. The owner can sell 5 tokens thereby producing $5000 as the income needed for the renovation of his house.
Tokenization would grant the mechanism needed for homeowners to sell shares of their real estate assets by listing them on secondary markets. Fractional shares of the property are converted into digital tokens that can be further sold on global markets
Access to Global Markets
The current real estate market is bound by regulations and geography of the real estate asset. Taking into consideration such factors, selling a property is substantially difficult for any owner. Moreover, it may take months or even years before the property is sold off in the market. Due to this, the liquidity remains blocked in that particular piece of real estate for the owner or the investor.
However, tokenization provides a platform that can completely change the dynamics of selling a house in the real estate market. It opens up possibilities of selling digital tokens on a global market, which is not bound by the geographical location of the real estate. Additionally, it eases the lengthy procedures of selling or buying a real estate property. Through tokenization, the process becomes as easy as transferring information right from your smartphones.
Homeowners can leverage such characteristics of tokenization that guarantees a frictionless process.
Any real estate investment needs high liquidity, be it solely for investment purposes or buying a house to live. Moreover, that investment remains blocked for a larger time period and it is considerably difficult to extract instant liquidity from this ‘Pillar of Wealth’.
Real estate tokenized properties can instantly free up liquidity by buying or selling fractional ownership on global markets. Investors can choose from an array of properties all across the world and can buy digital tokens in multiple investments. This is a huge relief for homeowners who can instantly gain access to the liquidity that would otherwise remain blocked in their real estate property.
Any real estate market in almost any country requires a bunch of middlemen to monitor the success of any deal. From buying or selling a property to completing the regulatory requirements, there are a number of intermediaries that charge heavy fees and make the process lengthy and boring.
Blockchain technology is a medium that ensures peer to peer transactions without the need for any intermediaries or middlemen to monitor the process. Through smart contracts supported on the blockchain, tokenization enables the removal of intermediaries like brokers for buying or selling any real estate property.
Homeowners do not need to pay heavy fees to brokers that help them find their customers. Enlisting their property on an international platform that supports tokenized real estate asset needs minimal transactional fees to be paid in comparison to the traditional methods.
Access to Premium Investments
Our complex web of real estate is a niche that is limited to premium investors. The average Joe cannot buy a premium piece of real estate with the current prices in the market. Moreover, the average Joe cannot invest in real estate property without a considerable chunk of liquid investment.
Tokenization facilitates an arrangement that is inclusive for the average Joe and the average Jane. It allows anyone to invest in prime real estate properties through crowdfunding mechanisms and fractional shares. A real estate investment that guarantees high returns seems within reach for any investor through the process of tokenization.
How Do Homeowners Tokenize Their Property?
On Vave, we have created a platform for owners, investors, and developers to tokenize their property in a smooth and frictionless manner.
Digitization of real-world illiquid assets benefits home-owners in selling tokens of their property on a global market that is open 24/7. Moreover, on Vave, owners can access a wide pool of investors all across the globe without paying any fees. Owners can also choose to tokenize their shares and make passive income from the rental investments.
Real estate tokenization is indeed taking the world through its innovation. The possibilities are endless!