The blockchain, as we all have known, is distributed ledger where the transaction data is recorded in an immutable fashion. This would mean that the data recorded on the blockchain cannot be altered, and at the same time, is completely transparent. This gives enhanced security to the transaction data. When smart contracts - self-executing and self-checking codes that regulate and facilitate transactions - are introduced into the realm of the blockchain, it represents a powerful convergence quality like transparency, traceability, accessibility, cost-efficiency, and above everything, security.
Even with this surface-level knowledge on the capabilities of the blockchain, it is quite understandable that the blockchain can enable transactions and processes without the intervention of an intermediary which might translate into cost and time. This advantage can come in as a big bliss for a private market like real estate. The distributed ledger can hold data on the asset or a title in addition to the involved transactions. The blockchain can help develop a digital secure identifier for a proposed transaction, and can also facilitate a smooth transfer of funds using cryptocurrency like Bitcoin.
The Bliss of Blockchain for Real Estate:
With all the advantages, the blockchain can eliminate the need for intermediaries like lawyers, verification agents, and banking services. The customized smart contracts serve to verify and validate the information, and it cuts down on the fees related to the escrow. Overall, bringing in the blockchain into real estate helps improve transparency, optimize the accuracy and speed of deed-transfers and accelerate MLS listings.
This Is Not All Of It... Not Even The Tip Of The Iceberg!
Real estate has always been one of the most lucrative and promising platforms of investment. However, the lofty prices of some properties, and especially, commercial real estate offerings, have positioned real estate into an unthinkable channel of investment for average citizens. However, with the blockchain, real estate, or any other high-value asset like collectible art, can be converted into tokens that facilitate fractional sale and ownership of the asset. The tokens represent shares of ownership, and are tradeable and transferable, making the earlier-illiquid asset relatively liquid. The expansion of the prospective investor-crowd and the possibility of growth-financing makes real estate tokenization an epoch-making milestone in investments and real estate!
The Different Avenues of Tokenization
There are different methods to tokenize real estate including but not limited to Asset Token Offering (ATO), Security Token Offering (STO), Digital Securities Offering (DSO), or Tokenized Asset Offering (TAO). These tokenization methods allow not only real estate owners, but also projects and firms to crowdfund their assets using cryptocurrency. Among them, security tokens present themselves as the most promising and widespread method of tokenizing real estate.
Security tokens are securities on the blockchain that digitally represent ownership of real-world assets like commodities, real estate and even shares of companies or bonds. They are subject to security regulations. The security tokens are also programmable and these programs can define the functionalities of the security token. The code can be executed without any intervention from intermediaries like banks.
The blockchain is just a tip of the Iceberg for the technological transformation that it can bring it through in terms of automatic real estate transactions. The processes like the land survey can be performed by linked GPS equipment and survey markers. Based on this data come on a standard title contact can be created with the parameters like GPS coordinates, block number, and the address. The property details which have been created can be added to the blockchain along with the other required data like documents and maps. Now we have a property title ready. This title can be tokenized and every element of this token can be tracked and can be deployed as collateral in multiple transactions. Anything said tokenization brings about a high degree of liquidity that you might not be possible in the classical way in which real estate used to operate.
The Growth Potential
The world of Technology has made things happen really fast! It is not essentially limited to transferring funds from one bank account to another. With the blockchain promising top-notch security, the value of security tokens can be transferred seamlessly in a peer-to-peer fashion without any intermediaries.
Combining the security and speed of the blockchain with the liquidity offered by the organization, it becomes considerably easy to either by or sell houses. This growth is likely to be fueled further by the general boom of real estate across the globe. North America has shown a steady growth whereas the developing markets of the Asia Pacific present a very high growth potential with an unexpected market in the range of about $11 trillion by 2020.
Democratizing real estate
The concept of tokenization gives access even to the common man when it comes to investing in coveted portfolios. Commercial real estate, which was once confined to the green layer of investors, can be made more democratic as tokens that represent part ownership of the Asset can be what even by small investors.
The increase in the number of investors contributes to the liquidity of the assets through secondary markets. In addition to these core benefits, there are a lot of other passive benefits. Digital shares have a considerable advantage and perform better than a lot of other classical methods of recording and trading ownership because of the following advantages:
- 24/7 markets
- Decentralized trade
- Transactional transparency
- Irreversible code
- Public auditing
- Investor pseudo-anonymity
- Rapid settlement
- Reduction in direct costs
- Increased liquidity and market depth
- Fractional ownership
- Programmability
- Automated compliance
- Asset interoperability
- Self-custody
- Fees = fraction of traditional costs
- Accurate land titles
- Cross-border simplification
Technology has been constantly transforming the way in which processes have happened in the real world. The technology that Optimises the existing process brings about business stability, profitability, and efficiency. It is the extent of adaptability of a company that determines its survival. Since blockchain is challenging the status quo, it is important for commercial real estate companies to understand and embrace the technology, redesign the business model, strategy and create a financial plan that falls in line with the benefits of the organization and the advantages of the blockchain.
How can it be done?
Tokenization can be brought about only by companies that understand the technological Supremacy of the blockchain and the business elements of commercial real estate. Blockchain App Factory has the credentials it takes tokenize your real estate asset, be it commercial or private. If you would like to take advantage of tokenizing commercial real estate, all you need to do is just get in touch with us and we will take care to do the rest!
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