The Complete Guide to Real Estate Tokenization on Blockchain
The introduction of blockchain technology in real estate has bought a huge revolution in the domain. As a long-term asset, real estate is an illiquid asset. But the aspect of Real Estate Tokenization has changed everything. Huge transparency is brought by the introduction of blockchain technology in the field. Now, the buyers get a chance to have easy execution of the transactions by having the use of tokens in real estate.
What is Real estate tokenization all about?
Real estate tokenization involves transforming assets into different digital tokens to represent the underlying asset with certain rights and obligations.. For defining the contractual specifics, there is the use of smart contracts.
How do real estate tokens work?
In real estate tokenization, assets partition using smart contracts which in turn are an automated piece of code residing in the blockchain. The person who buys the token is also called the owner of the real estate. And as a result, the person is also entitled to profit and loss of that particular property.
The real estate property is tokenization, whether it is commercial, residential, or trophy. Tokenizing real estate is also very beneficial. Hence, it benefits the individuals in the below-defined ways:
- Great opportunity for small-scale investors.
- Efficient and transparent transactions
- Free-flowing market
- Enhanced liquidity of assets
- Counterparty risk is eliminated.
Detailed process of Real Estate tokenization
There is the involvement of various stages in the real estate tokenization process. Below is the same details:
Stage 1: Deal Structuring
The process of real estate tokenization begins with the selection of the jurisdiction, and shareholders along with deciding certain rules have an impact on the starting phase of deal structuring. Majorly, the individuals choose to tokenize the prevailing deal. It is for the purpose of providing liquidity and presenting the investors before soliciting money for the new projects.
Read also: Asset Tokenization
Stage: Legal Structures
The tokenization phase also involves transferring ownership information recorded on paper to the blockchain segment. These tokens appear in the distributed ledger. Also, different actions is encod in these smart contracts. Real estate tokenization is possible in several ways and explained below:
Project Finance: Tokenization is considered an effective way to generate funds for various projects. During this phase, tokens give to the consumer. Also, the ownership of individuals is display by these tokens.
Real Estate Funds: Majorly, of the investment done by the private equity firm is in the portfolio of properties. Approved institutional purchases will only take advantage of dividends derived from the investment of tokens.
Real Estate Investment Trust: The digital shares can create by the investors in the REIT. Thus, the token owners are having the same right in the field as compared to that traditional investors.
Stage 3: The selection of desirable technology
After properly signifying the legal structure of the real estate, then comes the stage of selecting the most desirable technology for the aspect of real estate tokenization. The process involves various things like selecting the blockchain or the token, defining the primary and secondary marketplace, and establishing the secure custody system for real estate.
Stage 4: Marketing & Distribution
It is the final and the most important stage in the process of real estate tokenization. It focuses on the marketing of the tokens in the digital world. The investors might also require a digital wallet available to individuals on mobile platforms and the web. It is use for storing the tokens.
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