Tokenization of Real Estate - An Introduction
Recently real estate tokenization has emerged as an unconventional investment vehicle with advantages for both issuers and investors. So, what is it?
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
Real estate tokens can also be differentiated from real estate investment trusts (REITs) since they allow for a specific investment linked to a particular real property, whereas REITs typically facilitate investment into pools of various real estate assets.
What's an STO?
The digital tokens are created and issued on a blockchain during a security token offering (STO), also referred to as a tokenized security offering or a tokenized asset offering. Each fraction of ownership is converted into a token and then encrypted to grant ownership.
Ownership can then be transferred directly from investor to investor on digital securities marketplaces using alternative trading systems (ATSs) almost instantly for a relatively low fee.