Tokenized Real Estate: An Escape from The Bear Market

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If you’re new to stocks or cryptocurrency investing, a bear market is when a market (stocks or crypto) experiences a persistent decline in price/value, losing 20% of its recent highest value. And it’s no news that we’re in a bear market considering the entire crypto market has dropped from its $3 trillion peak cap in November 2021 to less than $1 trillion.

Bitcoin (the largest market-cap cryptocurrency) lost 70% of its value from its all-time high of $69,000 in November. While Bitcoin may be a good investment, the current bear market has left many either losing all or most of their investment in this cryptocurrency.

Part of the reason for the volatility in the cryptocurrency market is that most cryptos aren’t backed by physical assets. 

This makes assets such as real estate one of the best investments you can make in this bear market. However, its illiquidity and many barriers to entry makes investing in real estate not a viable investment of opportunity for many. To solve these problems, real estate properties are being tokenized. Before we delve into the real estate tokenization concept, let’s explore what tokens are.

What is a token and tokenization?

Tokens, in blockchain technology, are tradable digital assets representing a store of value or utility – tokens can represent physical, virtual, or abstract items. And tokenization is the process of transferring physical and virtual assets into digital forms. The first asset-backed token is the real estate token, and it is a way of making real estate more liquid.

The tokens represent digitized shares, and by tokenizing real estate, people can now have direct ownership of fractions of a piece of real estate.

Tokenizing an asset allows property owners to split the ownership of their property investment into portions that can be traded on an online marketplace. After the sale of equity stakes, both parties can benefit from any profit the property accrues.

This tokenization concept is made possible by virtue of blockchain technology and smart contracts.

What is blockchain technology?

Just like banks and companies use a ledger to record business transactions, blockchain technology uses a more efficient and secure system. Blockchain technology uses a system of distributed ledger technology where a piece of information is recorded across several computers (distributed database). This way, it’s almost impossible to alter the data as you’ll have to change the information shared across the computers.

What is a smart contract?

A smart contract is a form of digital contract on the blockchain that executes itself when certain predetermined conditions have been met. Smart contracts eliminate the need for lawyers or paperwork when establishing your ownership of a property. 

Both smart contracts and Blockchain technology make tokens have both legal backing and economic value.

So what are the benefits of investing in tokenized real estate properties?

Advantages of investing in tokenized real estate

  1. Low barrier to entry

Prior to now, investing in the real estate market was not feasible for most people due to the huge sums of money it took to stake in properties. This made real estate investing reserved for just institutional investors. Also, people investing in real estate through real estate investment trusts (REITs) are required to pay hefty fees. 

Real estate tokenization solves these problems and opens up opportunities for everyday people and smaller investors to have stakes in high-value real estate properties.

By tokenizing real estate, individuals with less capital can purchase a token and own fractions of a property (without paying huge fees) and earn profit from the rent if it’s leased out – no need for mortgages or real estate records.

Also, property owners and token holders can sell their tokens (or parts of them) whenever they like for higher prices on marketplaces. And buyers can easily connect with sellers without having to go through third parties because of blockchain technology.

2. Borderless investment

With real estate tokenization, people can now invest in any property on the market regardless of their location. You could invest in a tokenized house in your city, a rental property in another city, or a hotel construction project in another country. You are not limited by location.

3. Asset divisibility

Probably the most important advantage of real estate tokenization is its shared ownership attribute. Blockchain technology and tokenization enables a piece of real estate property to be invested in by a broader audience.

You don’t have to lock up all your money buying a whole piece of property when you can buy a part of it along with other investors and earn rent from it. Tokenization makes real estate become more liquid, so you can easily buy and sell your share of investment in real estate. You could also diversify your portfolio and have fractional ownership in multiple investment properties at the same time.

4. Faster and cheaper transactions

Transactions on the blockchain are trustless, as you don’t have to go through third parties such as lawyers, banks, real estate agents, etc. By tokenizing a real estate property such as a house or an office building, you can buy a deed of the property and the smart contract will transfer the deed of ownership to you – no third parties involved.

This makes buying tokenized real estate properties on the blockchain faster, cheaper, and more efficient as there are no delays or hefty fees or commissions.

5. Transparent, secure, and provable

With the traditional way of buying real estate, inexperienced investors are liable to buying properties from fraudsters. Blockchain and real estate tokenization solves this problem – real estate tokenization ensures the transfer of value and verifiable information.

Blockchain technology uses a system of distributed digital ledgers to provide the highest level of security as transactions are immutable – this makes the transactions secure and unable to be tampered with. Immediately, you pay for a fraction of a piece of property, the ownership is transferred to you.

The transaction is verifiable, secure, and provable (transparent) as everything is recorded on the blockchain. You can look up the transaction history and the previous owners of the property. 

Types of real estate tokenization

As a way out of this bear market, you can invest in a wide range of asset-based tokens. Here are the different types of tokenized real estate;

  • Commercial tokenization: this is when commercial properties such as hotels, apartment buildings, and offices are tokenized with legally-compliant protocols to distribute their ownership.
  • Residential tokenization: this is when residential properties are tokenized to grant investors, developers, asset owners, and institutions fractional ownership of the properties.
  • Trophy tokenization: this is tokenization of premium iconic buildings so investors can purchase stakes in these properties. 

Wrapping up

Investing in commercial real estate is a great way to hedge your funds against valuable physical assets. And at RedSwan CRE Nigeria, our focus is on making commercial real estate investing available to the public regardless of your financial standing. 

Our real estate blockchain marketplace grants you access to your own fractions of choice real estate properties across various cities both in Nigeria and globally. Also, property developers can easily submit their properties to raise equity and for investors to own a stake.

Simply sign up for a RedSwan CRE Nigeria account to learn and begin investing in high-value commercial real estate properties.


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