The applications of blockchain technology are plenty but some industries seem stubbornly rooted to the past. The real estate industry is one particularly mired in traditionalism. Fortunately innovation wins in competitive markets and real estate has not been impervious. From title industry to escrow, several key pieces of real estate transactions rely on antiquated paper-trails and human verification. A distributed ledger is poised to disrupt this process in a permanent way and the early stages of innovation are already taking hold.
Real estate tokenization enables fractional property investment without the traditional obstacles of a REIT or property investment group.
A pioneer in the implementation of blockchain in real estate RealT is utilizing the immutable properties of a distributed ledger to record fractional property ownership and tokenize real property assets. Here is an excerpt from their most recent article on the subject:
The Benefits of Asset Tokenization
The foundation of a token economy offers the potential for a more efficient and fair financial world by greatly reducing the friction involved in the creation, buying, and selling of securities. Features like integrity, robustness, accessibility, and immutability, make blockchain a powerful accounting tool and the process of asset tokenization creates a myriad of advantages, including greater transparency, liquidity, and accessibility as well as faster and cheaper transactions.
A security token is capable of having the token holder’s rights and legal responsibilities embedded directly onto the token, along with an immutable record of ownership. This immutable record means that nobody can “erase” your ownership even if it is not registered in a government-run registry. These characteristics promise to add transparency by tracking and recording the history of the asset every single time it changes hands.
Tokenization of assets will create a more liquid world and could drastically change the dynamics of global trade. Tokenizing assets — especially private securities or typically illiquid assets such as real estate — enables them to be more easily traded on a secondary market of the issuer’s choice. What’s more, access to a broader base of investors increases the liquidity of these assets, benefiting investors who consequently have more freedom and sellers because the tokens benefit from the “liquidity premium” thereby capturing greater value from the underlying asset.
When tokenization of assets reaches the mainstream, the global trade of (previously) illiquid physical assets could become an everyday reality. As assets become increasingly tokenized, global trade becomes less difficult, and an opportunity for developing new markets for previously underutilized, illiquid assets opens up. As a result, people from different corners of the world will be able to own fractions of the same physical asset or exchange different kinds of assets directly and instantly.
Reduced Barriers To Entry
Importantly, tokenization could open up investment of assets to a much wider audience — thanks to reduced minimum investment amounts and periods. Tokens are highly divisible, meaning investors can purchase tokens that represent small percentages of the underlying asset. If each order is cheaper and easier to process, it will open the way to a significant reduction of minimum investment amounts. Moreover, the higher liquidity of security tokens could reduce minimum investment periods, since investors can exchange their tokens on secondary markets which theoretically are global and open 24/7 (subject to regulatory limits).