Tokenization Process of a Real Estate Asset

Real Estate Tokenization

As technologies advance, they adapt to different sectors of society. They are advancing at breakneck speed to establish themselves in every area of ​​our daily lives.

From our way of learning to our way of working. One of these recent and innovative technologies is the immutable and interconnected block chain or blockchains.

One of these areas that is being digitized is that of real estate assets. These assets representing thousands or millions of dollars have very limited access and are often owned by institutional investors leaving little room for retail investors to bet on these markets.

The tokenization of real estate assets appears to break all this. Can you imagine being able to invest in a real estate asset with a price 10 times cheaper?

Well, get your act together, because here we explain how the real estate asset tokenization process works.

What is tokenization?

Before delving into how file tokenization works, it is important to understand what this concept is.

When you make an online purchase, the server asks for your personal and bank details. Offering that information in the browser is risky, because there is a chance that it could be intercepted or stolen. You are not guaranteed the protection of your data in digital services.

Tokenization arises to solve this problem.

This technology offers the guarantee that all the data that is sent in the browser of your device remains safe and without external interference. What happens is that the moment your data is sent through the browser, it is converted into a set of random characters that hide sensitive information called tokens.

This is a mere example of what tokenization can guarantee. But with this example we can understand what this concept is.

Tokenization is the procedure used to protect, design, program, launch, market and guard a series of tokens. This procedure replaces sensitive data with tokens. It is not a one-off or isolated event prior to the token issuance process, but rather an ongoing procedure.

You may be wondering what a token is, and we are going to explain it to you.

A token is the digital representation of an asset integrated into a public blockchain. Although some think that this concept has no value, they are very wrong. This digital representation is what gives value to an asset.

Any object, both physical and digital, can be tokenized, as long as it represents value for a third party. The tokenization process involves a cost, so it is important to find an asset that has value, because if not, it would be useless to invest in that object.

Real estate tokenization

It does not matter if it is a tangible or intangible object, any asset can be tokenized as long as it has a value.

Let’s imagine a building. It is a real estate asset. We can divide that building into as many parts as we want. Each part will have a certain value. If the building as a whole is worth €100,000 and we divide it into 100 parts, each part will have a value of €1,000. Now the building is represented by 100 tokens, and each of those tokens is worth €1,000.

This is the tokenization of a real estate asset. However, from this process another very important part of blockchain technology comes into play: investment.

The investor can access that market by buying one of those tokens that represents a real estate tokenization asset. It is your gateway to the tokenization market. Now, the performance of that asset can be linked to the building being leased or rented, so the investor can obtain recurring profits that are distributed among all token holders. Although there are many other ways to exploit a real estate asset for profit.

The entrance ticket can be reduced to €10 if instead of dividing the building into 100 parts we divide it into 1,000 tokens. There the entry price for the investor would be €10. Considering all the benefits you can gain from running that building, that’s an extremely affordable figure.

Blockchain Technology

None of this would be possible without blockchain technology. This tokenization process works with the registration, security and instant transfer that the blockchain allows. These real estate assets are issued on a chain of blocks, and initially they are in the portfolio of the issuer, the owner of the property.

The token sale process can be done publicly, so that any user registered in a market can access these tokens, having a license from the CNMV (National Securities Market Commission) or privately.

The tokenization of real estate assets has opened the door to a market that was traditionally limited to people with a very high purchasing power to anyone who intends to embark on this world.

Benefits of tokenization

Thus, asset tokenization offers a number of benefits:

Allows greater liquidity. Thanks to the division of assets into parts, investors have greater liquidity in the market, and it helps to find investors much more quickly and easily than in traditionally illiquid markets.

Create new commercial and social models. Now the ownership of an asset can be distributed among different people with the same degree of ownership.

Access to a decentralized, secure and transparent market. Tokenization takes place in a free and decentralized market, which offers the possibility of making transactions more safely and quickly.

Tokenization has infiltrated all sectors of society. From financial systems, to other sectors such as real estate investments. The possibilities that this concept introduces are abysmal, and many companies are realizing this, which is why they are adopting these technologies in their business strategies.