A Comprehensive Guide on Real Estate Tokenization

As per the latest study on global commercial real estate, the total transactional amount has grown to US$830 billion in 2019. As the data suggests, this sector is highly lucrative for return on investments (ROI). However, traditional real estate dealing is a lengthy process and requires huge investments. Read on if you are looking to explore a better and cost-effective way of investing in real estate.

Blockchain technology offers a sustainable, higher ROI and secured real estate investments and trading through the tokenization process. You can generate security tokens against a promising property and list the token on cryptocurrency exchanges. The following public crypto offerings take care of security token trading:

  1. Security token offering (STO)
  2. Tokenized security offering (TSO)
  3. Tokenized asset offering (TAO)

The Basics of Real Estate Tokenization Through Blockchain Security Tokens

Property owners, real estate agencies, investment firms, and real estate developers can issue Ethereum-standard (ERC20) security tokens through a non-fungible token (NFT) system. These tokens will represent a certain percentage of the real estate. Token owners will have digital certificates through NFTs on a blockchain, and thus the ownership is refutable, immutable, and authentic.

Owners and investing agencies can further list property security tokens on a token exchange or crypto exchanges for trading, similar to transactions in stock exchanges.

Unlike the traditional real estate business, property security tokens offer higher liquidity, security, and fractional investments. Every individual from different professions and backgrounds can purchase security tokens and then trade those on multiple crypto exchanges. It is noteworthy that you can list your property security tokens on various trading platforms for maximum visibility and trading.

Dappros, a blockchain development platform, offers you a cost-effective service for NFT tokenization for real estate. Above all, you can add value to your project through other complementary Blockchain services from Dappros.

The Advantages and Promising Features of Real Estate Tokenization

As tokenization of property increases, more Blockchain network developers and service providers will develop new crypto and security token exchanges. As the exchanges would increase, retail and institutional investors will get more options for secondary market trading.

Real Estate Tokenization will revolutionize the future of the real estate sector, and the followings are the advantages and promises that it holds:

  1. Immutable Blockchains Will Become an Irrefutable Ownership Proof

No one can change the block’s data once a transaction occurs within any blockchain network. Thus, any property security token exchanges through the blockchain platform will be irrefutable ownership proof for the entire or fraction of the property.

Investors will not have to worry about any fraudulent activity they frequently face in conventional real estate investments.

  1. Software Programming for Transparent Transactions, Management, and Automation

Blockchain networks are decentralized, and investors can access them via advanced software consoles. Therefore, the entire real estate securities transaction system will be highly transparent and automated.

The systems will be bias-less and will allow tailored security tokens on multiple crypto or security token exchanges.

  1. Investment Opportunities for Retail Traders

The fraction of the US dollar is limited to $0.01. However, property security tokens can have up to 18 decimal points. Thereby you can enter the market with meager investments.

However, property owners or real estate developers can impose higher prices for each security token. The pricing entirely depends on the valuation of the real estate and tokenization method.

  1. Fractionalize the Real Estate Sector

Blockchain technology is a promising tech that can fractionalize the real estate investment sector. As a result, more and more retail and small investment firms will invest in the industry by trading property security tokens.

  1. Lower Transaction Settlement Timeframe

You do not have to invest a lot of time and monetary expenses while investing in real estate through Blockchain.

Primary and secondary market trading of property security tokens is automatic, and you can enter or exit the market instantly, depending on your investing appetite.

Security token exchanges operate just like the stock market, so you can trade on the go using a smartphone a swell and continuously monitor the market ups and downs.

  1. Liquidity and Flexibility of Portfolios

Retail investors and asset management firms will have the micromanagement capability of real estate on Blockchain.

Investors will experience the benefit of higher liquidity and diversification of the portfolio they hold. It is always wise to invest in multiple real estate development projects rather than one.

  1. Global Access to Billions of Higher ROI Properties

The conventional real estate sector is localized, and apart from very few exceptions, it can only attract investors from specific regions.

But, when you list your property security token on crypto exchanges, your property gets visibility from a substantial retail investor base worldwide.

Similarly, when you invest in real estate security tokens, you can have a diverse range of property choices for investments globally.

  1. Real-Time Asset Evaluation Depending on the Market performance

Tokenized real estates listed on securities exchanges depend on the market performance for its valuation.

Thus, when you trade property security tokens, you get to exit at a higher price range when the market is booming and enter at a lower price when the market is correcting its course.

  1. Crowdfunding Opportunities for Mega Projects

When real estate developers want to run mega projects like shopping malls, amusement parks, corporate office hubs, landscape development, toll plazas, bridges, etc., they do not need to worry about investments.

They can list their projects on crypto exchanges through STO, TAO, and TSO. Further, those who purchase security token units through STO, TAO, and TSO, can trade their holdings on secondary markets.

This vicious transaction cycle will generate billions of dollars in crowdfunding for mega-development projects.

  1. Partial Ownership Determination is Effortless

Everybody is aware of disputes arising due to partial ownership of real estate property or development projects.

Tokenization of real estate through Ethereum-standard (ERC20) security tokens eliminates any partial ownership-related complications. Each shareholder will hold a definite amount of security tokens with full right to trade on primary or secondary securities markets.

The Blockchain Technology-Based Tokenization Process for Real Estates

Fundamentals for tokenization of real estate are simple. First, you will calculate the total property area and its net income potential. For example, if your property has a size of 50000 sq ft and the estimated net income from the property is $20M. Hence, you can issue each security token at $400 with a share of 1 sq ft. You can also minimize the price for each security token by further fractionalizing the sq ft area.

However, there are technical phases for tokenization and successful listing on crypto exchanges. These phases are:

1) Deciding the Deal Structure

Multiple factors control the deal structure, like asset types, jurisdictions, applicable regulations, and shareholder types. Asset owners must decide the following elements:

  • Asset: Landlords or real estate developers must define the property for tokenization.
  • Legal structure: You need to choose from any of the following legal wrappers:
    • Private Equity Real Estate Fund.
    • Single Asset Special Purpose Vehicle (SPV).
    • Real Estate Investment Trust (REIT).
    • Project finance through crowdsourcing.
  • Define Shareholder Rights: Depending on which legal wrapper you choose, you can either allow dividends to shareholders or governance rights.
  • Target Investor Types: The legal parameters will also define which type of investors you will offer security tokens.Selecting Technologies

2) Selecting Technologies

The technology selection process is much faster once you finalize the deal structure. You will have to make the following critical decisions:

  1. Blockchain or Token Selection: You will need to choose a specific Blockchain network. You will also need to decide which transfer restrictions and data to include in security tokens.
  2. Custody Solution for Security Tokens: Both the asset owner and investor will require a custody solution for security coins.
  3. Anti Money Laundering (AML) and Know Your Customer (KYC) Requirements: Link up an AML and KYC vendor with the security token issuance platform.
  4. Primary and Secondary Security Coin Exchanges: You need to decide how you would like to offer primary issuance to the investor. Subsequently, you will also need to choose on which crypto exchange investors can trade their security tokens.

3) Property Security Token Creation and Distribution

At this stage, you will need to consider the following parameters of real estate tokenization:

  1. Token Creation: You need to choose the minting technology to keep a steady supply of security tokens.
  2. Acceptable Funds: You will need to decide how you would like to accept funds and which funds are eligible for transactions like cryptocurrencies or fiat currencies, or both of these.
  3. Security Token Distribution: You need to choose whether you want real-time security token settlement on purchase or clearing after a day or two.

Dappros Blockchain Platform for Effortless Real Estate Tokenization

Tokenization of real estate will offer information transparency, operational efficiency, and an investor-friendly trading platform.
Dappros platform is the right choice for you if you plan to crowdfund for your upcoming real estate development project or tokenize existing property for liquidation objectives.

Dappros offers a one-stop solution for all your real estate security tokens’ development, launch, and management operations.

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Taras Filatov CEO

Dappros is looking forward to learn about your challenges.
We offer free advice on how blockchain, tokenization & fintech 2.0 can add value to your business.

P.S. I read all inquiries and respond to them personally.

Taras Filatov, PhD Computer Science,
  Dappros Founder & CEO