Tokenizing of various asset classes is in the making. Real estate is just one of them. In the future, we will tokenize a wide range of assets. However, real estate is the one we will concentrate on in this article.
There are many reasons why this will happen. We will cover them and give some samples as well. So, let’s have a look at what tokenizing real estate is about. Here’s an infographic that shows the estimated size of various asset classes. Crypto is only $2.5T All these assets combined are > $500T. Most of these assets will get tokenized over the next decade or two, and the protocols that tokenize them will capture a lot of that value. pic.twitter.com/6Qj3QbzeZE — shivsak (@shivsakhuja) December 17, 2021 What Is Tokenization, and Why Do We Need It in Real Estate?
Tokenization is still in its early stages. Shivsak wrote a thread about real estate tokenization. He is one of Crypto Twitter’s influential DeFi writers. As a co-founder of Magik Invest , he’s active in DeFi as well. He sees tokenization in general happening within 10 to 20 years.
Tokenization is when you turn a real-world asset into a digital asset. In our case, a house or other real estate asset. Real estate and NFTs have one thing in common – they are both unique. This gives NFTs already a head start to represent real estate.
Reasons to tokenize real estate include the following; Fractionalized investing — This means that you split the NFT up in 100, 1000, or more parts. This way you can have many owners.
Worldwide accessible and tradable 24/7/365 — Just like crypto markets, they are always active.
Liquidity of real estate — It cuts out middlemen. Ownership and money transfers are between buyers and sellers.
Proof of ownership — The NFT clearly represents undeniable proof of ownership.
Improvement of market security and transparency — Each transaction is transparent. Blockchain technology backs security.
Diversification through bundling — You can diversify your investment by investing in pieces of many properties. For instance, instead of $150,000 tied up in one house, you diversify. Like 10 properties at $15k each. You can also invest in different types like this. For example, in industrial, commercial, or residential properties.
Reduced friction of transactions — Real estate transactions involve lots of paperwork. There are also plenty of costs. But you can also digitize this process. You can also include ownership. Now it becomes a simpler, faster, and easier process.
You can plug the NFTs now into smart contracts. This opens up a whole new can of opportunities. So, we are going to have a look at them. How Do You Use Your Tokenized Real Estate NFT?
There are various ways you can use your tokenized real estate NFT. We will show you a few options.
For a Mortgage or Refinance
If you need a mortgage or want to refinance your asset in real life, there are a few hoops to jump through. Your average mortgage takes months to get cleared. You also need a lot of documentation. To top this off, you need a good credit score. This is a biased and unfair system.
On the other hand, in DeFi, you can secure a loan in no time. The only thing you need is collateral to back it up. In this case, your house is the collateral for your mortgage. In other words, your NFT that represents your house.
This may need to be some kind of conditional transaction with a few steps in it for it to succeed. The reason is that, in this case, you don’t own the token.
Real Estate Investment
This has a few limitations in TradFi. In general, it boils down to two options. > You can buy a property — This requires a lot of money/capital. You also need physical access and management. It doesn’t allow for any diversification. Real Estate Investment Trusts (REITs) — They give you limited options. It requires trust in their managers. On the other hand, in general, there are few details available. However, if we compare this with DeFi, we see a different story. For example, you can invest: From anywhere in the world. With a small amount of capital. In a specific property. In index tokens that represent a neighborhood, city, state, or country. This can be a potential option. There are many other options available in this field. As a result, we already see many companies that offer tokenized real estate. Finding […]
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