Real Estate Crowdfunding : Time for tokenizing real estate now

Real estate is currently one of the largest alternative asset classes, with market value at USD228 trillion. Real Estate crowdfunding (or property crowdfunding) is a new way of raising money for real estate investment by reaching out to a pool of investors to contribute a small amount of money towards a project. The process of raising money is conducted via an online crowdfunding platform. The issuer joins a platform with the aim of getting funds to start or improve a real estate project. The investor joins a platform to invest capital in exchange for high returns on the investment.

Real estate crowdfunding has become a viable option for crowdfunder to raise capital to buy properties for selling or renting or even a piece of land for development purposes. This approach has become a feasible alternative to traditional ways of raising funds for investment as well. Most of the time, real estate investments such as REIT or single property investment are mostly meant for wealthier investors such as sophisticated investors or institutional investors.  Today, with real estate crowdfunding, it opens an opportunity for retail investors to participate in the project with little money. It benefits investors to invest their funds either through equity (own a stake of the real estate asset) or debt (lend money as a loan) in return for a proportional stake of the project returns (sales value increase or rental income).

• Crowdfunded real estate investing can provide an element of diversification to an investor portfolio. If the investor is currently invested in stocks and bonds which do not generally correlate with real estate, this is an opportunity to add real estate crowdfunding into the asset portfolio. 
• Crowdfunding allows investors to benefit from the potential of single-property investments without the headaches of actually becoming a landlord, bankers, lawyers or dealing with renovations problems.
• Crowdfunded real estate allows investors to invest in assets that may otherwise be inaccessible to them. Could you really go out and buy an office tower or high-rise apartment building? Even if you could, would you know how to go about adding value to the property in a cost-effective manner? Crowdfunding allows you to leverage the expertise of others in assets that have historically been the realm of wealthy developers.
• Most crowdfunding deals only focus on a specific property which investors get to choose the real estate that they prefer, as opposed to real estate investment trusts (REITs), which typically own a portfolio of many properties.

Today, a new waze of technology is changing the traditional crowdfunding method which brings greater efficiency, higher security, and lower costs to the financial industry which is tokenization real estate assets for a digital era. 

Tokenization is a relatively new term used to describe a cryptocurrency fundraise in which investors exchange fiat or crypto currency for “tokens”. It is a way to securitize real assets where divide assets into shares or ‘tokens’ that represent a predefined share of the underlying asset. This is called “security tokens” which are secured through the immutability of blockchain technology and they are tradeable via crypto exchange or Alternative Trading System (ATS). 

The security token can then be used for representing the ownership and each transaction made on the property is recorded on the blockchain. Moreover, digital tokens can be used for signifying proof of ownership, transferring fractional rights of the land, receive interest or pay debt on the structure or to hold equity or share of a physical property. Any interaction or transaction made on the token is then permanently stored on the blockchain ledger.

Blockchain is essentially a decentralized digital ledger used for recording data, transactions, and documents. The data is permanently stored on the ledger along with a time-stamp attached to it. Additionally, the authority for data is distributed among various members in a transparent way.

Tokenizing real estate will bring in high-volume liquidity that will help investors with efficient buying and selling of properties and also with a quick conversion of property values into cash.

Tokenization allows fractional ownership where the issuer can split the value of shares and also their ownership.

Tokenization removes geographical barriers where issuers can trade with anyone around the globe which widely expands the business opportunities.

By tokenizing real estate assets, users are enabled to direct peer to peer transactions with no involvement from intermediaries such as bankers or lawyers. This helps to reduce additional costs.

The integration of blockchain into the tokenization platform provides immutability where the transactions once recorded, cannot be interchanged. Blockchain completely protects the user and their asset information.

Tokenization eliminates the long and tedious real estate process and helps with quick, efficient peer to peer transactions from or to anywhere around the world.

The tokens can easily be subdivided into many parts and this enables its sale at lower prices due to the presence of fractionalization. Hence, small investors can participate greatly in the process while the wealthier investors can efficiently diversify their portfolio.

No individual or organization controls the entire system, and the power is equally distributed between the different users.

Blockchain technology has revolutionized the real estate industry and created opportunities that were once unthinkable. The tokenization of real estate assets has increased liquidity in the market and created a more cost-effective and efficient marketplace. Before the tokenization of real estate, only sophisticated and institutional investors had access to the most exciting projects. But now, asset owners and developers can market their projects globally to retail investors as well. 

Security tokens are going to change the way of investing. Imagine you have the chance to buy shares of a world-renowned hotel or a skyscraper building in other countries. Issuers have a better option to fractionalize the assets to public and individual investors will soon be able to allocate capital any way they see fit. It is excited to explore the endless possibilities for tokenized securities.