The commercial real estate landscape has been experiencing a transformative change for some years as a result of tokenization, offering investors unprecedented accessibility to large-scale assets.
This paradigm shift is possible through tokenization, a process that subdivides properties into investment units represented by tokens. Although ownership of the entire building remains out of reach for individual investors, tokenization promises to democratize real estate investing.
In this article, we will try to delve into the possible implications of tokenization in the real estate market, emphasizing the role of blockchain technology, examining current adoption rates and highlighting the obstacles that stand in its way.
Tokenization and blockchain: a symbiotic relationship
Real estate tokenization, as a process, is fundamentally based on blockchain technology . At its core, blockchain is a secure, distributed ledger system that records and combines transactions into a chronological chain.
This eliminates the need for third party intervention acting as intermediaries. Examples of this are banks, brokers, accountants, and notaries, among others. In this sense, blockchain provides real-time authentication and tracking capabilities, which generate greater security and tracking conditions.
As a result, ownership of a real estate asset, represented by a token, becomes irrefutable. By dividing properties into shares represented by tokens, real estate becomes more divisible and accessible to a broader spectrum of investors.
Promising examples and initiatives
Notable examples in the world of tokens, such as Bitcoin and Ethereum , have paved the way for the possible application of blockchain-based cryptocurrencies in real estate transactions.
Experts such as Anuj Nangpal, professor at the Indian Institute of Management in Calcutta, as well as Asia Pacific director of the JLL Spark Global Venture Capital Fund, suggest that cryptocurrencies can serve as a means of payment in real estate transactions and facilitate investment collective in properties worldwide.
Additionally, new tokens, such as RealFuel, are being designed specifically for the real estate market, illustrating the growing interest in tokenization.
On the other hand, there are various websites that are creating the conditions to allow the acquisition of digital tokens representative of real estate. In this sense, we can find Crowd Villa, an innovative platform, allows consumers to purchase tokens for stays in vacation homes from the company's portfolio.
This successful use case demonstrates the adaptability and potential appeal of tokenization beyond traditional ownership models. Julian Kwan, the founder of RealFuel, foresees tokenization and initial coin offerings becoming more common in the industry, especially in regions where ownership rights come at a high cost.
Challenges and obstacles to overcome
Despite the tremendous potential, mass adoption of tokenization faces several challenges. One of the prominent challenges lies in the existing real estate infrastructure, which has not yet managed to fully adapt to tokenized assets.
Additionally, regulatory frameworks in certain jurisdictions may present liquidity issues, making the smooth exchange of tokens difficult. Anuj Nangpal highlights that the real estate industry is rooted in a complex network of intermediaries, ranging from asset managers to notaries, which could take time for them to fully adopt the use of tokens and blockchain technology.
Likewise, the extreme volatility of cryptocurrencies, the cornerstone of tokenization, introduces an element of uncertainty for potential investors. This volatility may deter risk-averse individuals from venturing into this innovative investment landscape.
However, proponents argue that the significant benefits of tokenization, including improved access and liquidity, will eventually outweigh these early apprehensions.