Analyzing the Relevance of Real Estate Tokenization in a Post-Covid-19 World

Real Estate Tokenization
Analyzing the Relevance of Real Estate Tokenization in a Post-Covid-19 World

Due to the huge proliferation of digitization, illiquid assets like real estate have been divided into tradable tokens in a process called Real Estate Tokenization. This leads to more number of investors being affordable to invest in the properties of their choice as the barriers to entry have been reduced significantly.

Covid-19 has had a big impact on the global real estate industry. The value of the assets must be preserved, liquidity should be maintained, and the tenants must be kept safe. The Real estate industry is a core sector vital to every economy as it generates a lot of employment and also supports many allied industries. The traditional real estate industry has been fraught with huge financial commitment, cumbersome paperwork, lengthy processes, and lack of transparency in information sharing.

Housing sales in major cities have declined by more than 50% this year. Many upcoming construction projects have been delayed. This has led to a decrease in the number of new project launches in the sector. There has also been a delay in the supply of construction raw materials and labour due to the multiple lockdowns imposed by the governments across the world.

This has led to a new habit for homebuyers, where they use digital technologies for house hunting and shortlisting a property. As visiting a site physically is not safe anymore, virtual meetings have increased.

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Key Benefits Offered by the Tokenization of Real Estate Property

  • Real Estate Tokenization provides a lot of tax efficiency. The depreciation value of an asset can be deducted from the rental income earned from a property. The tax advantage is present on both earnings and capital gains.
  • Without paying any capital gains tax, the investors can opt for reinvestment of their gains into the valuable tokens of a new property.
  • The investors can get a monthly payment of dividends, rent, capital gains, and liquidity by investing in high income-generating properties.
  • Investors will know the performance of their assets by getting access to reports submitted periodically. This ensures full transparency and visibility.
  • An investor who seeks high growth can expand his portfolio over time and retain complete operational control over his property.
  • A variety of properties will be available that includes family housing units, factories, offices, and commercial buildings.
  • Real estate tokens are less risky when compared to cryptocurrencies that are highly volatile and speculative.
  • Adequate stabilization is ensured so that the value of the security tokens does not deviate below the underlying Net Asset Value (NAV) of the property.
  • Smart contracts ensure liquidity, customization, and efficiency eventually taking the possibility of productive property investments to the mass market.
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The Latest Developments Related to Tokenized Real Estate During Covid-19

  • The Stan Group, Hong Kong is planning to tokenize real estate to provide incentives to its employees using a private blockchain network. They have launched a token named ‘Buy a Brick’ where each token represents a stake in a property.
  • The Securities and Futures Commission of Hong Kong is planning to create well-defined regulations for protecting the investors’ rights.
  • Software platforms like DigiShares are tailor-made for Real Estate Tokenization as only approved investors can buy the tokens. The platform ensures immediate fund settlement, 24×7 trading facilities, and full transparency. It also provides an exclusive investor dashboard and issues digital stock certificates to the investors.
  • Platforms like Cocoricos have multiple tokenized properties listed that can be easily bought by investors. It is less expensive and quicker than a traditional house sale. They have established a global marketplace where real estate investors can seamlessly interact with each other.
  • Blocksquare is an enterprise that issues its own token named PropToken for tokenizing commercial properties. The PropToken contains all information about the rent distribution, data of the property to be tokenized by obtaining records from the land registry, and access to trading history.
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Scope of Real Estate Tokenization Post Covid-19

Hybrid real estate tokens will soon be launched on a large scale in digital fund exchanges in the years to come. Prop Tech will use a combination of Artificial Intelligence, Big Data, and the Internet of Things to track every aspect of the property on a real-time basis. Real estate tokenization is at an early stage of development now. Despite having many advantages, it may have some limitations if there is a lack of effective demand.

Market participants will have to be comfortable using blockchain technology. It should not alone improve the existing business processes but create new profitable opportunities. Since there is legal uncertainty in the trading of security tokens, this leads to uncertainty for both issuers and investors of security tokens.

No doubt, the growth of Tokenization of Real Estate Asset will benefit all the stakeholders in the entire ecosystem. Regulatory bodies and governments are fast adapting to the new change by developing appropriate legal frameworks and creating a friendly business environment.