Time flies fast. The first real estate was tokenised in 2018, and despite it happening more than half a decade ago, it still hasn't crossed into the realm of mainstream investment forms.
But why is that?
Some would say it's because people don't know how exactly blockchain technology works. Others say it's due to the distrust toward cryptocurrency. And others believe that individuals and businesses don't understand the tokenisation process and the benefits of it.
We believe the truth lies somewhere in the middle. However, we're also convinced that property tokenisation will sooner rather than later become an accepted, if not preferred, investment avenue.
To dive further into the topic, we'll answer a few questions so you can understand why we're persuaded that tokenisation is the future of the real estate industry.
When asked like that, of course developers and owners don't need to tokenise their real estate to build equity, generate income, or profit from a significant Return on Investment (ROI).
One of the many reasons to digitise a property is access to a wider pool of investors and buyers. Non-tokenised real estate is mainly sold locally, meaning developers and owners have limited options to generate capital or close profitable deals.
Conversely, digitised properties can be sold over a blockchain network to anyone, anywhere in the world. It enables construction companies to gather funds for their projects quickly. It also allows individuals and businesses to become partial owners of real estate that was otherwise unavailable to them.
Another reason to tokenise properties is the capacity to build liquidity rapidly. Buying or selling real estate the traditional way can be lengthy, tiresome, and complex. Digital tokens, on the other hand, are much easier to trade on secondary markets. Investors can acquire property shares without dealing with intermediaries and cumbersome legal procedures.
Finally, tokenisation allows individuals and businesses to diversify their portfolios. It offers exposure to a broad range of real estate across different locations and asset classes. For example, someone in Croatia can acquire fractional ownership over a prime property in Los Angeles without catching a plane or entrusting their money to third-party negotiators. In addition, real estate tokenisation gives investors the possibility to spread risk. Instead of pouring their funds into a single property, they can fan it out by acquiring stakes in multiple real estate.
Is ever anything 100% safe? But let's not get into philosophical debates and focus on the topic of property tokenisation.
Like any emerging technology, real estate digitisation has its tweaks that need to be tweaked. However, since it relies on blockchain and smart contracts, we can confidently claim it's much safer than most people think.
Blockchains are distributed ledgers that record and store transaction data across a network of computers. It means no one person has access and control over the entire system's information.
They offer their communities a high degree of transparency and monitoring, which isn't always the case when working with developers, builders, and realtors. In real estate tokenisation, blockchain networks trade tokens and record every transaction. They create a transparent audit trail that enforces trust among members and limits the risk of fraud.
To make things even better, the blockchain community makes all decisions regarding a digitised property collectively. It involves everyone in the decision-making process, offering a more democratised environment than conventional real estate operations.
Smart contracts are paramount to property tokenisation. They work in tandem with blockchain technology to offer investors the transparency and safety they desire.
Developed to streamline processes, facilitate the execution of agreements, and enhance security, these digital agreements can:
Overall, smart contracts have revolutionised how digital transactions are made. Their role in real estate tokenisation is expected to grow even more with technological progress and the digital transformation of industries.
As we mentioned above, property tokenisation has a few challenges to overcome. Perhaps the lack of legal clarity is the most significant question mark regarding this innovative technology.
Since real estate tokenisation isn't yet massively adopted, the legal framework surrounding it is still evolving and adjusting. Issues like ownership rights, cross-border transactions, dispute resolution, and contractual enforcement need to be addressed in the upcoming years.
One more difficulty to conquer is market acceptance. Property digitisation is altering traditional real estate practices, requiring education for major industry players such as stakeholders, developers, investors, property owners, regulators, financial establishments, and, last but not least, buyers.
Technoligical infrastructure is also an obstacle to hurdle. Tokenisation requires robust technological systems that can handle high transaction volumes while being user-friendly. The absence of standards and techniques to accurately calculate prices also needs answering before real estate tokenisation can be widely adopted.
Mainstream acceptance of property tokenisation won't be linear. The process will take time and will have its ups and downs. After all, habits cannot change overnight. However, with blockchain and smart contract technologies becoming more and more present in day-to-day business operations, it's safe to assume that people's perception of tokenisation will change in the future.
Investors and early adopters must educate the masses on the benefits of real estate tokenisation. The better individuals and businesses understand the power of digitisation, the more quickly tokenisation will become a standard investment form that can be used to accumulate wealth.
Despite all the questions that surround the digitisation of real-life assets, it's an undeniable fact that tokenisation is on an upward trajectory. For one simple reason, it gives investors control over their choices and gives people the chance to become property owners even if they don't have the capital to purchase an entire plot of land, house, or building.
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