The world of investment is changing fast thanks to the development of cryptocurrencies and blockchain technology.
With the digitisation of the value of certain assets comes greater liquidity – and, thanks to the decentralised blockchain ledgers that display indelible records of all activities and transactions, often publicly – the security of this approach could be considered more sophisticated than any other option.
The significant benefits of the digitisation of currency have quickly made their way into the world of investment – including property investment. Property investors may now exchange capital – be that in the form of cryptocurrency or fiat currency – for “tokens” that represent a portion of a property asset.
This may very well be the future of real estate investment – a secure and liquid approach that creates improved standards of simplicity and flexibility for those in the know. This new resource is called “real estate tokenization”.
How it Works
The fundamental idea behind real estate tokenisation is that after digitising or liquifying a physical asset – in this case, property – it can then be divided into individual “tokens” of a value set by the individual or company seeking investments.
Investors can then purchase one or more of these tokens and become the owners of either a physical portion (say a number of square metres) or a percentage of the property in question.
These tokens can then be traded on certain exchanges in a similar way to stocks and shares.
Why Sell or Purchase a Tokenized Asset (or “Security Token”)?
One of the main attractions of tokenization for investors is that it represents a cheap and straightforward way of purchasing real estate. Other platforms often involve underwriters and other middle men, complicating and adding cost to the process of acquiring assets.
In the past, the world of property investment was all but impenetrable to smaller businesses and individual traders as a result of its complexity and the significant costs involved. Tokenization creates new opportunities for fractional ownership, opening the doors to a wider range of investors.
Investors can claim dividends that have been calculated according to the asset portion represented by their tokens. Thanks to their liquidity, these tokens can also be more easily traded across borders, allowing greater freedom and flexibility.
Real estate tokens are also less volatile than cryptocurrencies, as the asset they represent is “real” – so their value can be kept relatively stable.
Of course, for developers or other owners of property who tokenize their assets, this approach is a highly manageable and affordable way of raising capital – similar to crowdfunding in some ways.
Creating and Trading Tokens
There are numerous professional services and specifically developed tools available online to help property owners and developers to launch their very own real estate “security tokens”. With the range of options available, all that is required is a little research to find the perfect platform.
Tokens can be traded via specialist exchanges offering the correct resources and adhering fully to all relevant legislation. As this form of investment is still somewhat in its infancy, the number of platforms that are set up to support this form of trading remain few and far between.
However, as the popularity of real estate tokenisation grows, it’s highly likely that more and more exchanges will implement the tools required to handle it.
Where Do We Go From Here?
It is clear that this is just the beginning of a new approach to property investment, and one that seems to be gathering momentum. As with almost any new technology or resource, the more it is used, the more it will develop.
Because of its benefits to investors of all types and sizes as well as its positive impact on property owners and developers, it is likely that real estate tokenisation will continue to become accessible – and be accessed – by increasing numbers of businesses and individuals.
Gone are the days of sky-high minimum investments and other highly limiting restrictions – from now, almost anyone can get involved in property.
It would not be wholly surprising if the approach gradually became one of the most commonly accepted methods of property investment, perhaps even going so far as to have an impact on the likes of venture capital and private equity.
According to Ruban Selvanayagam from Property Solvers, specialist ‘any house’ buyers based in the UK: “property (real estate) is notoriously slow to catch up with tech. However, the streamlined efficiencies that tokenisation brings to the table makes it a proposal that’s hard to ignore.”
With greater security, stability and liquidity, real estate tokenisation is revolutionising property investment and granting opportunities for those individuals and businesses that were once “priced out” of the market.
It also heralds an easier way of raising capital, providing opportunities to a much broader field of potential property developers. These facts point to tokenisation being a property investment option “for the people” – a levelling force that is highly likely to stick around.
Its potential is boosted by its lack of volatility. After all, there is nothing theoretical about the asset represented by the tokens in question; it’s still “real world” property after all.