By tokenizing real estate properties, developers can convert whole real estate assets into digital tokens, which can then be sold, bought, or traded in speed time. What does this mean for developers?
One of the most common problems real estate developers face with trading real estate is asset illiquidity. This leads to lengthy transactions that can keep your capital tied down in a property – but that’s changing! Real estate developers are harnessing the power of blockchain technology to make the once world’s most illiquid assets more liquid – thanks to real estate tokenization.
An STG report estimated that the market cap for tokenized real estate reached just under $27 billion in 2021. And at RedSwan, we processed tokenized real estate worth up to $2 billion in 2020. So why should you care?
If you’re looking to make your real estate assets more liquid, you’re not late to the party. Tokenization and blockchain technology are in their early stages, and there’s no sign of their growth slowing down. In this article, we’ll show you all the benefits of tokenizing your real estate property. Let’s dive right in.
What is real estate tokenization?
“Real estate tokenization helps real estate developers to recapitalize a very high percentage of equity in their properties, so they don’t have to sell the property in order to crystallize funds,” says RedSwan founder and CEO, Edward Nwokedi, in an interview with Benzinga. “And it helps LP investors not to get stuck in an asset for a long time.”
How’s this possible?
Tokens are blockchain-based assets that represent ownership or give their owners access to certain features on the blockchain. This innovation makes real estate tokenization a great way for real estate developers to fractionalize their properties using tokens. By fractionalization, we mean splitting a property so it can easily be sold in bits as tokens on the blockchain. These tokens are encrypted to confer ownership to whoever owns them and gives the owner the rights to get profits generated from the property.
To better understand this, we’ll briefly explain what the blockchain is.
What is blockchain technology?
Blockchain technology is a new technology that was introduced in 2008 to make it easy to store and share information on the internet in such a way that it can’t be altered or manipulated – it does this using a distributed ledger system. The best way to describe this is when you make a bank transaction, your record is stored on the bank’s ledger, and this can be altered by the bank. With blockchain technology, this piece of data is stored in several places that makes it virtually impossible for it to be manipulated.
Also, blockchain technology makes it easy to transfer and receive data and physical and digital assets in a peer-to-peer fashion – no third parties required, it’s secure, and fast. This is what makes it a powerful technology for buying and selling real estate.
So how does real estate tokenization work?
Let’s say you just completed (or are in the process of completing) the development of a property worth $10 million. But you’re having issues selling it or raising capital. Tokenizing the property can help you sell it much faster. You can break up the property into 10,000 digital tokens, with 1 token costing $1,000 and probably representing 1 square meter of the property. This lesser price reduces the barrier to entry for most investors and makes it easier to get more investors. When someone buys one or more tokens, the encrypted tokens are transferred to them securely, and they own a fraction of the asset.
In essence, real estate tokenization makes it easy for real estate properties to be traded like stocks. It helps real estate developers raise capital quickly by selling the tokens rather than raising funds the traditional way through bank loans or private equity – this is like crowdfunding, except that investors get instant ownership of the asset. Investors, on the other hand, get security tokens that represent their partial ownership of a valuable, rent-generating asset.
The transactions are done online – on the blockchain – and are secure, transparent, and efficient.
What are the benefits of real estate tokenization for real estate developers?
Here’s how blockchain technology and tokenization are helping real estate developers;
Increased liquidity
Tokenization transforms illiquid assets like real estate into more liquid assets like stocks. This means that real estate developers can raise capital faster and more efficiently at any stage of development as opposed to being held back by the bureaucracy of traditional funding methods. Also, it makes real estate investing viable for everyday investors as they can cheaply buy and sell digital tokens representing real estate assets which they usually won’t be privy to.
Fractional ownership
Tokenization enables fractional ownership of real estate assets. So while investors can buy and own small portions of a property, developers can still hold fractions of their property if they don’t want to give everything up. The transactions are secure and recorded on the blockchain and are immutable.
Increased transparency
Blockchain-based transactions have a high degree of transparency and are unalterable. This allows real estate developers to have a broader view of the ownership of their properties and the investment process. The transparency provided by real estate tokenization also increases investor confidence in the process.
No middlemen
The use of smart contracts in real estate tokenization has eliminated the need for intermediaries such as brokers, lawyers, and banks. This lowers transaction costs and makes the process more efficient. Real estate developers can save money on legal fees, due diligence, and other expenses associated with traditional fundraising and selling methods.
Global reach
Tokenization allows real estate developers to reach a global pool of investors. Digital tokens can be bought and sold from anywhere in the world, which opens up a wider investor base for real estate developers: hence fundraising can be quicker.
How to tokenize your real estate property
You can tokenize your property in four simple steps;
Step 1: Property selection
The first step in tokenizing real estate strategy is for RedSwan to select the right property – not all properties qualify for tokenization. The property should have a clear title, a good location, show potential for appreciation, and be suitable for fractional ownership.
Step 2: Structuring the token offering
Next up is structuring the token offering. This is where you determine the number of tokens you’ll issue, the price per token, and the terms of the offering. You can consult a financial expert for this.
Step 3: Choosing the right platform
After you’ve structured the offering, you’re ready to list your property. You can list your commercial property on RedSwan’s marketplace. We’ve got a large pool of interested investors waiting to buy tokens of quality property.
Step 4: Marketing the token offering
The final step is to market the token offering to potential investors. Through the RedSwan marketplace, interested investors are able view our offerings and express interest in their choices. But this doesn’t stop you from spreading the word on social media or across your network – you’ll be able to generate some interest and find some more buyers, especially since the barrier to entry is lower now.
Conclusion
Now as a property developer, you don’t have to wait long anymore to secure funding or find buyers for your project. You can securely exchange your real estate digital tokens in real time for capital to embark on other projects. We have built the infrastructure for you to safely list your property, sell your tokens, and get capital. Plus we have a list of global investors that we can showcase your property to. Sign up today to submit your real estate property and begin the process of selling shares.
