Figures from Global Wealth Report indicate that total global wealth has now reached $280 trillion, it is 27 percent higher than a decade ago and much of this wealth is relatively illiquid. One of low liquidity asset’s, such as real estate value alone was estimated at $217 trillion where commercial property accounts to roughly $54 trillion (25%) a market that is slightly less than all globally traded equities and securitized debt instruments put together.
The implication for this is that if we assume that commercial estate market has a 10% liquidity premium, then asset tokenization of commercial real estate alone can target a $5.4 trillion liquidity premium market, which is almost 10x bigger than the market cap of all cryptocurrencies put together.
Real estate tokenization is the process of representing an ownership interest in real estate assets using tokens. That is, the tokens can represent ownership in the underlying asset, equity in a legal structure that owns the asset, an interest in debt secured by the real estate, among others.
Here’s a detailed look at some of the advantages of tokenization of real estate assets.
The real estate industry suffers from a number of problems, which adds cost: a lack of trust that requires middlemen who often charge high fees; requirements of USD/EUR settlement in emerging markets; paper-based record-keeping in emerging markets, which increases the chances of errors and fraud. All this could be solved through tokenization.
The transaction of tokens is completed with smart contracts (software algorithms integrated into a blockchain which permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism) and as a result, certain parts of the exchange process are automated for example, automated dividend pay-out through smart contracts.
This reduces the administrative burden involved in buying and selling, with fewer intermediaries needed, leading to not only faster deal execution, but also lower transaction fees.
Tokenization through fractional ownership also allows diversification of risk arising out of asset ownership, that is, one wholly owned asset can be damaged and lose its value, while fractional ownership allows diversification of risk through owning a part of several assets.
Tokenization of real estate assets can enable newer models of raising capital, by allowing real estate projects that are under development to issue shares in form of tokens to finance project development. Additionally, it enhances the utilization of network effect for certain assets to increase their popularity in the market, by providing direct financial incentive to fractional owners.
Tokenization of real estate assets means that the token-holder’s rights and legal responsibilities can be embedded directly onto a security token, along with an immutable record of ownership. These capabilities promise to add transparency to transactions, allowing anyone to know whom they are dealing with, what their rights are, and who has previously owned this token.
In addition, using tokens which represent a particular real estate asset, a trustworthy digital identity means that the transfer of ownership will be easier.
Let’s look at some of the challenges that are not only affecting real estate asset tokenization but also other asset classes such as assets oil, gold, fiat currencies, diamonds, art, intellectual property, shares of companies, etc.
And once we’ve addressed the issues that currently affect tokenization of assets, we will start seeing major breakthroughs in this area.
Here at ICOSERVICE we offer a whole new suite of marketing services which will help our clients differentiate their businesses and take advantage of the opportunities in this new model of fund-raising. ICOSERVICE’s comprehensive marketing methodology helps companies and start-ups get started on the right foot with their security token offering initiatives as they embark on this journey.
ICOSERVICE comprises of experts with varying skills from technologists, to digital marketers, to legal players, to blockchain enthusiasts and therefore partnering with ICOSERVICE not only helps you with the marketing side of conducting a proper STO but also evaluating and implementing blockchain technologies in your business domains and deliver real value.