TOKENISED REAL ESTATE
According to the English dictionary, Real Estate refers to property that cannot easily be moved, usually buildings and the ground they are built on.
OBJECTIVES
At the end of this article, readers should;
· Know the meaning of Tokenized Real Estate.
· The Regulatory Frameworks of Tokenized Real Estate.
· Its’ Technological Innovations and Industry applications.
· Market Trends.
· Benefits and Challenges faced in Tokenized Real Estate.
Tokenized real estate refers to the process of exhibiting real estate assets on the Blockchain as digital tokens.
These tokens can be used to represent ownership or fractional ownership of Real Estate, and they can be traded on a decentralized exchange or other Blockchain-based platforms.
Some decentralized exchange platforms include FIC Network, and OpenBrix while the Blockchain-based platforms include Propy, Harbor, Ubitquity, and TokenSoft to mention but a few.
All these platforms make it easier for the creation, transactions, management, exchange as well as securing of property titles and other Real Estate assets. Several other platforms are currently in development or are yet to be launched.
According to KPMG, “tokenization is ideal for owners of a single asset or a small portfolio of assets, due to the significant reduction of time and cost in offering investors the right to participate in fractional ownership and subsequent secondary trading.”
The main features of tokenized real estate are; a firm which could be a Blockchain platform, a trust-minimized link between the digital asset (token) and the underlying physical asset (property), and tokenization standards.
The blockchain platform allows for the exchange of digital assets, and it provides infrastructure for the creation and management of smart contracts. These smart contracts are self-executing programs that automate the actions required in an agreement or contract and are used to govern the exchange of tokenized Real Estate.
Concerning the link between the digital and physical assets, it requires a User Interface (UI) and allows investors to interact with the tokens and access information about the underlying assets. The interface may be a mobile app, web app, or even a website.
Tokenization standards are guidelines that help ensure that tokenized assets are issued and managed consistently and properly.
WHAT ARE THE REGULATORY FRAMEWORKS?
Across the globe, the Regulatory Frameworks for Tokenized Real Estate vary depending on the specific characteristics of the tokenized asset. Regulatory Frameworks help sanction any corrupt activities by putting some laid down punishments for any offense committed. Though it does not handle corruption thoroughly they are required for such effort. These Frameworks also help transactions and exchanges of assets be done in a very transparent manner.
In the United States, Tokenized Real Estate is generally regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). The SEC classifies some Tokenized Real Estate as Securities, which they are subjected to the same regulations as other Securities, such as bonds and stocks.
The European Securities and Markets Authority (ESMA) has also issued guidance on the regulation of human tokenized assets, including Real Estate in Europe. Switzerland has its regulatory body as the Swiss Financial Market Supervisory Authority (FINMA).
TECHNOLOGICAL INNOVATIONS
Furthermore, numerous technological innovations are used in this concept. Amongst these include the DLT (Distributed Ledger Technology), Tokenized Mortgages, smart contracts, the use of digital twins, and Blockchain-based property management.
DLT is a type of blockchain technology that allows for the decentralized handling and keeping of data. DLT can be used to create a tamper-proof record of transactions and can be used to track ownership and usage of real estate assets.
The Tokenized Mortgages allow for the fractional ownership of real estate, making it possible for multiple investors to have access to one property.
As mentioned earlier, Smart Contracts are self-executing programs. They are being used to robotize certain areas of Real Estate transactions, such as Escrow and Title Transfers.
The use of digital twins, which are replicas of physical assets are used to create a virtual representation of a Real Estate asset, which can be used for analysis and simulation.
Blockchain-based property management allows for the transparent and efficient handling of Real Estate.
INDUSTRY APPLICATIONS
With these technological innovations, industries that apply Tokenization to Real Estate include;
1. Banking Industries which helps in exchange and transactions of tokens in real estate. Improved technology has made this easier. Traders do not need to see themselves and it is a trusted avenue.
2. Real estate developing industry; here, tokenization is being used to raise capital for projects, providing an alternative to traditional banking.
3. Property Exchanging Company.
4. Real Estate Investment Trusts (REITs)
5. Commercial & Residential real estate market, depending on the number of investors.
MARKET TRENDS
The market size for real estate tokenization was $2.7 billion in 2022, and its growth trajectory indicates that it could reach $16 trillion by 2030 according to a report by the Boston Consulting Group. Many market trends are driving the adoption of Tokenized Real Estate. These include;
- The growing popularity of alternative investments by investors to improve their portfolios.
- The rise of fractional ownership enables investors to access real estate assets at lower cost.
- The digital transformation of the real estate industry.
- Increasing demand for cryptocurrencies which can be used as a means of payment for Real Estate transactions.
These trends are creating a suitable environment for the growth of Tokenized Real Estate. As the technology advances and becomes more widely accepted, the market is expected to grow further.
Tokenized Real Estate offers some advantages including;
a) Attraction of smaller investors. At least, everybody is involved in the deal. This leads to increased liquidity and reduced barriers to the Real Estate market.
b) Ensuring security, increased liquidity, efficiency, and transparency.
c) Proper keeping of data. Data can also be accessible to anyone but impossible to intrude.
d) Smart Contracts make transactions faster, cheaper, and error-free compared to physical intermediaries, including banks and agents.
However, there are some challenges or risks that need to be addressed;
a) Inconsistent Regulatory Framework that governs the market,
b) Varying rules and regulations surrounding tokens lead to confusion and uncertainty for investors and issuers (traders),
c) Lack of knowledge about Blockchain Technology,
d) There are technological advances almost every day. These improvements may not fit with the previous ones. One may try to adapt to new technology which could be time and energy-consuming.
CONCLUSION
Conclusively, the growth of Tokenized Real Estate is a rapid trend that is being driven by several factors, including the digital transformation of the real estate industry, the increasing popularity of alternative investments, and the growing acceptance of Cryptocurrencies.
In all, the Tokenization of Real Estate is a promising technology that has the potential to revolutionize the Real Estate Industry.
REFERENCES
https://chain.link/education-hub/tokenized-real-estate
https://www.investopedia.com/terms/s/smart-contracts.asp
https://assets.kpmg.com/content/dam/kpmg/cn/pdf/en/2020/04/real-estate-tokenization.pdf
https://securitysectorintegrity.com/standards-and-regulations/procurement-monitoring-evaluation/
https://www.kaleido.io/blockchain-blog/guide-to-tokenization
