How Tokenization Can Transform The Real Estate Industry On The Blockchain

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.

  • Through this primer we seek to assess how tokenization can transform the real estate industry and also look at some of the challenges that currently affect asset tokenization.

Tokenization of Real Estate Assets

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.

  • The first ever Security Token Offering (STO) for a real estate property was completed for $18 million. The STO was for a 20 percent ownership stake in the historic, cash flow positive St. Regis Aspen Resort in Colorado whereby the resort’s ownership was broken down into shares which were tokenized into digital tokens called “Aspen Coins”.

Here’s a detailed look at some of the advantages of tokenization of real estate assets.

Create liquidity

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.

More accessibility and diversification of risk

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.

  • In October this year, a luxury Manhattan condo development offered tokenized shares on the Ethereum Blockchain worth $30 million. Users can buy fractions of properties, earn income on those properties, then, as with traditional real estate investments, sell their fractions at higher prices depending on the appreciated values of the underlying property.

Newer models of raising capital

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.

Improve transparency and easy transfer of ownership

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.

Challenges of Tokenizing Assets

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.

  • The need for a proper Technical infrastructure- The implication here is platforms for tokenization need to ensure high-level safety and security standards so that tokens stay linked with their real-world assets.

  • Regulatory uncertainties- The current regulatory uncertainties that dominate the crypto industry means that asset tokenization platforms present certain risks for clients and investors that may want to trade in those platforms. So there is need for all parties including governments to step in and ensure proper regulations.

  • The need for trusted issuers- In order for asset backed tokens to become popular among market participants they have to be based on the certainty that by using the tokens in any future point of the time, the particular token holders will be able to redeem their real-world assets.

  • KYC/AML and Digital identity- Know Your Customer (KYC) refers to due diligence activities that all companies and other regulated firms must perform to ascertain relevant information from their customers so as to do business with them. Anti-Money Laundering (AML), on the other hand, refers to laws/regulations designed to stop the practice of generating income through illegal actions. KYC and AML obligations have arguably become buzzwords when addressing compliance issues facing asset tokenization.

    However, with the implementation of proper internal KYC/AML policies and the integration of digital identity marketplace into the tokenization platforms that conform to the standards of regulatory bodies (think SEC and others) then asset tokenization will surely gain traction.

  • Concerns about asset valuations and rating- Even though asset tokenization ensures a high level of liquidity, not many token holders will have much knowledge about the assets they possess, the quality of those assets and the associated risks. This means in order for asset tokenization to take root we need trusted intermediaries to provide such valuation and rating data on asset backed tokens.

Closing Thoughts

  • Tokenization of real estate on the blockchain will arguably facilitate tremendous possibilities for growth and diversification to the real estate asset market. It has significant potential to facilitate transparency, efficiency and cost savings in the real estate industry by eliminating some of the existing inefficiencies in key processes.

And once we’ve addressed the issues that currently affect tokenization of assets, we will start seeing major breakthroughs in this area.

Are you planning a security token offering (STO)?

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.

In essence:y

  • We provide end to end STO management- from scratch we can take projects, run it right through to launch phase.
  • Our marketing strategy is customer/investor-focussed.
  • We provide web-design services and social media management, that is, promotion on Bitcointalk forum, Telegram channel, publishing on social channels such as Facebook, Twitter, Adwords and Reddit.
  • We make sure that your project reaches the entire blockchain community and all the possible investors- community building is a key aspect of well-constructed STOs. With our extensive network we are able to fully sell your project.
  • We do Bounty Program Development- we design effective bounty campaigns.
  • We do Security Token Design- That is design security tokens that have multiple dimensions of value, and create the conditions for a sustainable ecosystem.
  • We ensure that your STO follows all legal grounds- that is we connect you to the countries that have proper regulatory frameworks in place to deal with security token sales.
  • We ensure that your whitepaper is accurate and solid enough- Whitepapers are the backbone of every STO and the foundation of a crypto project. We, therefore, ensure that yours is relatable and comprehensive.
  • We are experts- this means we have developers who can do code audits and offer detailed analysis of your code. Companies and start-ups can also leverage our knowledge-base to ensure that your project has the highest level of development architecture.
  • We also offer escrow services to STOs with a desire to have the capital stored by a reputable group and distributed upon meeting certain goals.

ICOService: Contact Us

Feel free to contact us for additional information. We will be happy to discuss with You our services, answer any questions, and help to grow Your token.