Pascal De Keyser
The 3 Advantages of Tokenization of Real Estate
Real estate tokenization has emerged as new investment vehicle with advantages for both issuers and investors. Let's briefly outline the 3 most important ones!
What Is Real Estate Tokenization?
In essence, real estate tokenization converts the value of real estate into a token stored on a blockchain, enabling digital ownership and transfer. These divisible tokens each present a fractional share of ownership stake in that real estate.
Real estate tokenization is the process of fractionalizing real property into tokens stored on a decentralized database. This decentralized database stores information like a digital ledger and is commonly referred to as blockchain.
Real estate tokens can represent:
Ownership of part of a real property
Ownership of the entire real property
An equity interest in an entity that controls real property
An interest in a debt secured by real property, or
A right to share in the profits generated by real property
3 key advantages of tokenization.
1. Lower barrier to entry
By facilitating investment in fractional portions of real property, real estate tokenization enables small-scale investor participation and lowers barriers to entry for retail investors. Lower minimums and smaller investment amounts can thus be leveraged to benefit from the potential high returns available to traditional real estate investments – which typically require significantly more upfront capital.
2. Ability to create liquidity
Real estate tokens are easily and securely traded on secondary markets such as tZero by using blockchain technology. This creates liquidity in the real estate market. Conversely, issuers are provided access to a wider pool of investors.
3. Lower transactional costs
Through automated processes and a permanent unchangeable digital ledger, blockchain technology has the potential to streamline investment transactions and lower transaction costs. As a result, investment transactions are generally completed faster and at a lower cost to the parties involved, facilitating higher returns for the investor.