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“The global real estate market was worth about $379.7 trillion in 2022,” Elizabeth Sample and Brenda Powers of Sotheby’s International Realty in New York City said in an interview. This makes this market one of the largest in the world. ”And they continued.
“We are all connected to the world of residential and commercial real estate by owning and renting. Using blockchain technology to create digital tokens of property rights allows us to buy, sell, and transfer real estate. This approach allows investors to invest in real estate more efficiently and increases the liquidity of this huge asset class.”
Already, the market for tokenized real-world assets, one of the biggest market opportunities in the blockchain industry, is growing rapidly, and a joint study by 21.co, BCG, and ADDX shows that the potential The market size is predicted to reach in 2018. According to Statista, by 2030, real estate is expected to account for approximately one-third of the tokenized asset market, making it the largest market. Common categories.
Fueling this growth is the Federal Reserve’s continued efforts to curb inflation by raising interest rates, and many experts believe they will continue to do so for some time. For this reason, investors are increasingly allocating to collateral-based cash flows backed by real estate assets that offer attractive risk-adjusted yields that serve as a stable source of income for investors’ diversified portfolios.
Historically, real estate has been a reliable hedge against inflation, and investors can also invest in traditional real estate investment trusts (REITs) and even real estate tokens. According to recent reports, President-elect real estate mogul Donald Trump and his son Donald Trump Jr., proponents of digital assets, are planning to use blockchain technology to integrate real estate investing and decentralized finance. It is said that it is developing a new real estate token project tentatively called “World Liberty”.
How can blockchain be used in real estate transactions?
Blockchain technology has the potential to serve as a transparent and reliable record-keeping system for real estate ownership and transfer at the city registry level. Smart contracts, which are programs running on blockchain, have the potential to be integrated with existing legal processes governing real estate ownership, while preserving the underlying legal processes of real estate ownership. These transfers and changes of ownership may be automated and recorded. This potentially reduces transaction costs by eliminating dependence on intermediaries and automating many steps.
For example, the City Registrar uses a software system called ACRIS to record and maintain certain personal property transfer records, such as mortgage documents for real estate in New York City and real estate in the Bronx, Brooklyn, Manhattan, and Queens. . However, ACRIS is not a blockchain system. It is a software platform primarily used to manage and automate regulatory compliance processes that are not designed to run on decentralized blockchain networks.
Blockchain technology can also be used to tokenize real estate assets to digitally represent a form of proof of fractional ownership of these assets. This controls transferability and also provides a medium of exchange. The digital asset tokenization system designed by the UDPN team “simplifies the investment process by creating virtual tokens that represent rights to assets and provides comprehensive lifecycle services from ideation to trading to asset servicing. ,” explained Tim Bailey, vice president of global business and operations for the UDPN team. Red date technology.
The main services provided by asset tokenization platforms include the creation and management of digital tokens that represent ownership of physical assets. Other services include token creation tools, storage wallets, and exchange and payment gateways.
With tokenization, one real estate asset/investment may be represented by 1,000 or more tokens minted on a blockchain platform, with each token representing a portion of the entire real estate asset/investment.
Real estate tokens can represent a variety of fractional real estate interests, such as those built on land that is the subject of a portion of a real estate deed (such as a co-op or condominium, or a free-standing home or office building). long-term leases, etc. to an interest in a corporation (such as an LLC or trust in the case of a REIT); or ownership of secured debt that may exist in different geographic locations or be subject to different laws and taxes.
Real estate tokens may be equivalent to non-fungible tokens (specific unique identifiers). Still, it can also be considered a fungible or security token.
Through smart contracts (computer code that automatically implements and enforces contracts on the blockchain), these tokens can be programmed to distribute rents to token holders. It can also be programmed to enforce legal compliance requirements, such as a one-year lock-up period on lease terms.
Other benefits of tokenizing real estate assets on a blockchain ledger include faster processing times for token buy and sell transactions that can be verified and recorded almost instantly without the need for lengthy manual back-office processes. There are several things that can be mentioned.
Tokenization of real estate does not directly change the legal concept of real estate ownership or make investing in real estate cheaper, but it does make real estate more accessible to a wider range of investors and allows real estate ownership to be subdivided. This could increase the liquidity of the real estate market. By converting into tradeable tokens, small, young individual investors facing record house prices, inventory shortages, inflation and high debt pose difficult barriers to homeownership around the world. Opens the door to a wide range of participants in real estate ownership, including: .
Tokenization transactions for owner-occupied fractional stock residential real estate are already occurring in the United States. Scott Thiel, CEO and Founder of Tokinvest, explains:
“This home was purchased in Longmont, Colorado for $740,000 and was financed by a third party investor who provided 97% of the purchase funds directly as alternative financing to mortgage credit. This home tokenization project , which represented a tradable investment security backed by the largest and most stable asset class on the planet: homeownership.Real estate token investors were offering small home ownership as an alternative to actively investing in whole homes. You can get the option to buy, trade and sell passive positions. We are tokenizing commercial and residential existing and planned real estate projects worldwide.”
In the Netherlands, Bart de Bruijn, co-founder of EstateX, is building a dedicated RWA blockchain real estate tokenization platform expected to launch in Q3 2025. He believes that the PROPX security token has the potential to revolutionize the global real estate industry by transforming the traditional real estate industry. By consolidating an illiquid and exclusive asset class into an accessible, flexible and liquid asset class, investors around the world can own a small stake in a specific real estate property and invest with minimal capital. and will be able to trade. These tokenized assets are easily available on secondary exchanges. EstateX operates on the RWA blockchain, so transactions (such as buying and selling tokens) incur a 20-35% gas fee. Tokens are paid via ESX as it is the platform’s primary vehicle for transactions, governance and staking. Covers the computational costs of transaction processing.
Comparison of real estate tokens and REITs
The expected high interest rate environment is likely to make REITs an established and desirable investment product, while real estate tokens could pave the way to a more dynamic, accessible and investor-friendly future . For reference, let’s compare how real estate tokens stand out compared to REITs.
Due to the complexity and evolving nature of real estate tokenization, it is wise to consult an experienced securities attorney, tax accountant, and blockchain expert before proceeding with any investment in real estate tokens.
