Blockchain in real estate: How technology is changing the industry

Much like stocks give us fractional ownership of companies, blockchain real estate brings fractional ownership of real property in this new use of blockchain technology. Investors can now own part of a property anywhere in the world without a large financial commitment and with near-instant settlement.

What Is Blockchain Real Estate?

Tokenized real estate investing is a relatively new way to invest in property, allowing investors to own fractions of a piece of real estate anywhere in the world. The “tokenized” part refers to the way the value of the property is divided into digital tokens that represent the owner’s stake in that property. All of the tokens for that property are stored on the blockchain, the same technology that underlies cryptocurrencies like Bitcoin.

The current value of the tokenized real estate market is approximately US$200 million. However, given that the present value of the global real estate market is thought to be US$317 trillion, a 0.5% tokenization rate would create a trillion-dollar industry.

There are, of course, several benefits to tokenized real estate investing, but there are also some facts you should understand. Let’s take an objective look at everything to do with tokenized real estate, including how it works, examples of investment, and what companies are already providing opportunities for tokenized real estate investment.

Traditional Real Estate Vs. Tokenized Real Estate

By its very nature, tokenized real estate investment brings several new characteristics that make it quite different from the conventional real estate investing market. Here’s a quick breakdown of those differences.

How Does Real Estate Tokenization Work?

Tokenization is used across many industries and simply refers to producing digital securities (tokens) that represent fractional ownership of an asset, in this case, real estate.

This tokenization is done on a blockchain, which is a public, distributed ledger system. This means that when a real estate asset is tokenized, all ownership records are stored securely and permanently on the blockchain.

The tokenization process involves three key steps:

1. The creation of digital tokens representing fractional ownership in the property

2. Issuance of the tokens on a digital ledger

3. Trading digital tokens on an exchange or platform developed for tokenized assets

How Does The Blockchain Real Estate Market Work?

The tokenized real estate market is predominately led and facilitated by specialized tokenized real estate companies and platforms.

• A tokenized real estate company will work with local real estate operators to source desirable real estate investment opportunities.
• The tokenized real estate company will create a special purpose vehicle (SPV) for the property, a legal entity created to protect its investors, such as a limited liability company (LLC).
• That LLC is then fractionalized into digital security tokens.
• A smart contract is created on the blockchain to ensure and exhibit ownership, security law compliance, etc.
• Fungible security tokens are minted and issued to investors, reflecting their fractional investment in the piece of real estate.

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