Real Estate Tokenization
Real estate tokenization is a new trend that is a fusion of real estate investment and blockchain technology. Tokenization helps asset management firms and VC firms raise capital more efficiently and provides investors with unprecedented access to private real estate investments, transparency, and to liquidity.
What is the Difference Between a Real Estate Security Token and a Real Estate NFT?
Real Estate Security Tokens (“REST”) is more suitable in a scenario where an individual or entity, issuing the token, intends to raise capital for a project (existing, new, or current) or to specifically increase the liquidity of their current assets. RESTs allow for the peer-to-peer transfer of ownership, and in most cases, represent shares or other security in an SPV (special purpose vehicle) that owns a specific property(ies).
The scenario with a REST usually involves offering fractional ownership of an asset. Multiple tokens representing a percentage ownership of an asset, where one token can be worth as little as $20 or as much as $100,000. Via a secondary market, token holders are able to easily trade their tokens to other interested participants.
Once the ownership is transferred (the process itself varies on the platform and the company facilitating the possibility of such a transaction), the most recent owner now possesses the same percentage of a specific asset. If for some reason they decide to liquidate their position, they sell their tokens on the secondary market to interested buyers. However, if they decide to attain complete ownership of the asset, then in most cases, they are able to purchase the remaining tokens; attaining 100% control over the supply.
The process with an NFT is very similar to a Real Estate Security Token. One needs to find a property they want to tokenize and then conduct their due diligence on the type of shareholders, the location, applicable regulations, etc. From there, a litepaper/whitepaper will need to be created, including information on the type of smart contract, the security involved, information on potential licensing acquired, and the number of tokens to be created with the price per token.
The main difference with an NFT ERC-721 protocol, is that every asset will be tied (in most cases) to ONE NFT token. Meaning that if a property is worth $100,000, the one NFT token will be worth $100,000. As you can see, there are some advantages to this depending on the net worth of the individual or entity purchasing this NFT. However, if you are looking to sell to a large number of individuals, then it is best to create a REST, conduct an STO (‘Security Token Offering’) and sell hundreds, thousands, or millions of tokens in batches.
In this scenario, no matter if you use an ERC-20, BEP-20, NFT ERC-721, or ERC-1400 protocols, you are dealing with an asset class such as residential real estate or commercial real estate. Because of this, you are automatically dealing with a security. Depending on the region, you may be required to contact your local financial technology-related authorities and apply for licensing – and create & send a prospectus – for the conducting of an STO (Security Token offering). Some nations have imposed fines for entities and individuals who conduct an STO without the required approval from the local securities commission.
The Benefits of Offering Real Estate Tokenization:
• Access to a large pool of potential investors and a lower entry threshold for investment. Investors are able to easily sell and buy real estate assets and convert them into FIAT or another cryptocurrency.
• Depending on the nation and region the tokens are being targeted in, the issuer may be required to apply for necessary crypto and/or real estate licensing. Attaining licenses relating to an STO, and even potentially having to file a prospectus with the local authorities, the issuer becomes more legitimate and their level of trust with their investor audience would have increased. From a marketing aspect, this helps the issuer to quickly attract the investors they need to raise the necessary funds.
• Investors receive the possibility of investing into real estate with little capital and are often guaranteed a quick exit strategy provided by trading in a secondary market.
• Associated costs and risks are being minimized due to the tokens being sold on a peer-to-peer (P2P) basis. If the transaction is being conducted on a platform such as PTPWallet, the transactions are quick, simple, and do not require a long list of processes to be completed.
• Due to the whole process being completed on a decentralized blockchain network, there is a higher level of security and potential information leaks are almost non-existent.
• All transactions are logged, allowing buyers and sellers to easily keep track of all conducted sales/purchases.
Real estate security tokens can be tied to shares of a real estate company, where investors profit from an increase in the value of a property and whom may also be eligible for dividends. However, security tokens are usually subject to strict regulations; with the token issuers having to comply with securities and real estate-related laws.
Creating A New Real Estate Token
When an entity or individual has decided to tokenize their property, a ‘security token’ is created on the ERC-1400; or potentially another blockchain protocol such as ERC-20 and BEP-20.
This token is tied to ownership of the asset and the cost of the property. The total value of all tokens will be equivalent to the total value of the price of the asset.
Any asset class can be tokenized: residential real estate, commercial real estate, cars, planes, ships, etc.
The question is – what do YOU want to tokenize?
Whatever it is, we can help!
