Tokenized property assets have received a lot of attention lately, with some analysts asserting they’ll change the industry forever. It’s too early to predict the degree of shift that may occur. It does seem highly likely that these digital assets could overcome some of the obstacles and downsides typically associated with traditional real estate investments.
They Make Transaction Tracking More Manageable
Since information about these real estate ledgers resides on the blockchain’s immutable digital ledger, it’s often easier for people to verify an ownership history than if they relied on traditional paperwork. Token transfers eliminate much of the complexity of conventional transactions. They also provide a publicly auditable record.
Moreover, suppose the real estate process includes smart contracts. In that case, the programmers that build those digital documents can ensure that transactions only occur under agreed-upon conditions and per the relevant regulations. Smart contracts reduce the likelihood of human errors that could otherwise happen more readily.
They Make Selling More Straightforward
Selling real estate in the traditional way is often complicated because the people who want to do it are so reliant on intermediaries. They must pay a portion of the sale to the agents that facilitate the transaction. Even before a property sells, the person ready to part with it has to hope that the real estate experts they hire will work hard enough to sell it quickly.
A real estate tokenization platform simplifies everything by giving people chances to take charge of the selling process themselves. Blockkimmo and Cocoricos are two of the many examples of places where people can go to start the sales process or browse the offerings to buy.
Tokenization expert Bastiaan Don clarified, “[Real estate tokenization] enables anyone to own and acquire a piece of real estate. You can do that today through an investment company, but blockchain allows anyone to sell anytime. You can sell your share on a secondary market.”
They Let People Buy Real Estate in Small Portions
Another challenge associated with real estate investing relates to the risk involved. People usually buy whole properties and hope that they reap the rewards later. However, the tokenized approach is different because it lets people purchase slivers at low costs. Consider the example of a Brooklyn apartment building made available through this kind of fractional ownership.
Mohammad Shaikh, the cofounder of the project associated with this offering, said, “By purchasing these tokens, investors no longer have to tie up large sums of money in single properties, nor are they restricted to [real estate investment trusts] with little transparency, or funds with high fees.” Investors get proportional amounts of rental income. Additionally, if the property’s value rises, so does the value of their shares. Each share only costs a few dollars.
They Let People See Data About the Property
Another perk of the Brooklyn project was that every investor also gets a shared data set about their property that shows details about things like repairs and past sales. Having that helps investors verify maintenance measures and assess the overall condition. Without the convenience of the blockchain, people may waste time trying to find that information and ultimately not succeed.
Cryptocurrency company Hydrogen also began offering real estate data through a Zillow integration to give people more information about property values. When people have increased knowledge about the properties they hold or want to buy, real estate investing becomes less stressful because they stay more informed.
They Increase Liquidity
Liquidity is a measure of how easily an investor can convert an asset into cash. One of the downsides associated with traditional real estate is that it’s illiquid. Tokenized real estate is changing that, especially since investors can receive automated dividends, as well as sell their shares at any time, as discussed earlier.
Some analysts also point out that tokenized real estate could lessen the so-called illiquidity discount applied for assets in shallow markets. Illiquidity discounts can total as much as 30-50% of the fundamental property value. Tokenization and the blockchain are not magic solutions to the lack of liquidity. However, they can help tackle the problem, if not eliminate it outright.
Widespread Adoption Remains a Hurdle
Despite the five advantages explored here, some investors accustomed to traditional methods may not feel ready to make a leap to digital assets. Their reluctance could mean that this option does not take off as fast as it otherwise might.
However, in a relatively short time, real estate tokenization platform providers and projects associated with this method of investment have cropped up and made people more eager to explore what they offer. As more individuals embrace them, others that are not such early adopters should follow.
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