In a case representative of most of the developed world, a recent story from the BBC shows how house prices have steeply risen in Britain over the last year. A lack of affordable housing supply, coupled with a desire for bigger living spaces due to remote working, are just two of the factors involved. The natural consequence of these events is that younger people are priced out of the market, many locked into a situation where they are forever renting and unable to boost their income through property investment as others can.

Enter real estate tokenization. Back in 2017 when crypto was skyrocketing and blockchain was becoming better known, asset tokenization and real estate tokenization projects were touted as the future of property ownership. Issues with security tokenization, legitimate worries due to fraudulent projects, and a simple lack of investor sentiment meant that promises of widespread tokenized real estate investment went unfulfilled.

In 2021 we have seen some reliable projects that give asset tokenization in real estate a more positive outlook as blockchain technology becomes normalized. In this article, we will take a look at the benefits of real estate tokenization, along with some facts and figures.

What is real estate tokenization

A deed to a property is recorded on the blockchain and tokenized, meaning the value of the property is divided into assets of any size, which can then be bought by any number of investors, who garner a percentage of the asset's returns based on the number and valuation of tokens they hold.

Real estate security tokens usually come in two forms, representing:

  • Joint ownership in a piece of real estate.
  • Claim over rent, which is paid out at agreed cycles based on conditions written into the smart contract.

Real estate tokenization key figures/statistics

According to Security Token Market's July report, the tokenized real estate market cap sits at US$31,225,794, up from $27,289,930 in February, but still a small part of the overall security token market, which sits at over $1 billion. It also represents a tiny part of the valuation of all property around the world ($228 trillion), of which $1.7 trillion is accounted for by REITs. There is definitely room for this sector to grow.

Benefits of real estate tokenization

It is widely acknowledged that real estate is one of the most secure long term investments.

More democratic

Blockchain tokenization makes smaller scale property investment accessible to a much wider range of people. A recent blog post by INVAO highlighted the case of a EUR 6.5 million property in an upmarket area of Paris. Tokenized on the blockchain into one million units, anyone can now own a piece of the property starting at just EUR 6.5. Similar property tokenization is also being used in Germany and Switzerland.

Quick settlement and trading

The tokens can be traded like stocks, without the hassle of going through brokers that charge exorbitant fees. A KPMG report states that real estate transactions can take anywhere from 6 months to 2 years. Smart contracts can make the secure trading of real estate assets almost immediate, cutting out middlemen and reducing fees.

Different blockchains

There are many different blockchains that suit a range of purposes, including public and private blockchains. Real estate can be tokenized on Ethereum, Algorand, Tezos, Harmony, and many other blockchains.

Reduced geographical limitations

Property tokenization eliminates location barriers, meaning you can participate in European or American property markets regardless of your location.

Increased security

Tokenization allows for transparency of transactions and ensures that each party will always have the most up-to-date record. Distributed ledger technology also brings greater security as there isn't one centralized database.

Future prospects of a tokenized real estate market

Tokenization of real estate has not reached the heights that were breathlessly predicted a few years ago, but progress has indeed been taking place. RealT offers fractionalized ownership of American real estate (much of which has already been sold out) and Germany's Black Manta Capital has a $12 million security token offering selling 2,000 square meters of apartments in Berlin. The Dubai government has been creating the Dubai Land Department Real Estate Blockchain (DLDRE). When governments get on board, it is usually a very good sign.

If you are looking to tokenize assets or build an online marketplace, get in touch with INC4. We have been working with blockchain technology for over 7 years, specializing in NFT development, DeFi projects, and building smart contracts.