Tokenization of Real Estates, A Game Changer In Real Estate Business Using Blockchain

Razi Khan December 21, 2018

2 minutes read

Tokenization of Real Estates, A Game Changer In Real Estate Business Using Blockchain

The multitude of applications of blockchain technology seems like a never ending prospect. With digital forms of currencies and human identities already pertinent across a variety of applications, a rather new concept introduced is the tokenization of real estate.

In the current status quo, the existent terminology for managing real estate operations is a REIT. A REIT is a company that owns, operates or finances income-producing real estate. Modeled after mutual funds, REITs provide all investors the chance to own valuable real estate and provide opportunity to access communities grow and thrive.

Explaining more about REITs was Patrick Springer, former MD at Morgan Stanley and currently serving as an adviser to Polybird Exchange. His commentary was provided exclusively to Block Publisher, where he initially discussed the REIT market. He said:

“In general, REITs year-to-date are up about 3% in the US, now outperforming the S&P 500, which is the market proxy. In 2017, the REITs were also up 3%, but they underperformed the S&P 500 dramatically because the stock market went up so much last year.

Explaining the utility of tokenized forms of real estate, Springer stated that it would act like a publicly traded form of REIT. He clarified:

The opportunity for tokenization of real estate will be in equity ownership as well as debt-backed securities.

Tokenized real estate will look a lot like publicly traded REITs if a) the token is composed of hundreds of properties, typically across a large geographic region or in a specific sub-sector (single family, multi-family, or retail, for example). Also, it will be similar if all of the properties are developed, have tenants, and are generating income. The purpose of REITs is to provide lower risk and dividend yielding investments.

He then moved on to talk about the benefits a tokenized form of real estate would bring. Counting that tokenized estates would spell an end to exclusivity of property and all sections of investors would be able to come into the fray, much different to the functionality of an REIT, which works post-development. He shared:

Tokenized real estate will not have to look like REITs for many reasons. A token of real estate can be a specific investment in a building or small set of buildings, so an investor can invest specifically in a location they want – such as a new building in Dumbo, Brooklyn. And while REITs are “post-development” and are income producing properties, Tokens can be of new projects that can generate a lot more return (although with higher risk) because the investor can buy it an earlier stage. The average real estate investor is not able to get into the funds that are building landmark buildings or areas such as the Hudson Yards – these are exclusive investments only elite real estate companies can participate in. Tokenization will fractionalize large projects and allow more investors to participate.

Adding to that, Springer stated that through tokenization, small fractions of investors and day job holders that want to invest into real estate will also be helped.

On the flip side, smaller investors who want to buy single units or a small building will find a tokenized version of that asset easier to buy than a similar property in the traditional way.

Accountants, lawyers, title insurance & other issues will all be detailed within the token and so the friction and costs of purchasing real estate are reduced. Tokenizing real estate will reduce all the toll costs that people are charged when they buy and sell real estate.

A real look into this application is yet to be seen, but one may not be charged for thinking that the blockchain space could provide for tokenization of real estate properties in the coming times.