Real estate tokenisation
Real estate is considered to be one of the safest assets. If you ask a random passer-by about the best form of investment and capital protection, this will surely be their answer. However, not everyone can afford to buy a flat or business premises. What to do when we do not have enough cash, but want to own real estate and profit from it? The solution is the technology which makes it possible.
For several years now, the world has been revolutionised by new blockchain technology, based on decentralisation and dispersion of databases. Many people equate this technology with Bitcoin and other cryptocurrencies that spread it around the world. However, the application of the new technology does not end there. Banks, large corporations and many other enterprises are already using blockchain to improve their processes and activities, by issuing their own tokens, they raise capital for further development or reduce the costs associated with trading their products. It is becoming more and more popular to invest in various assets using tokens, real estate being one of those assets.
Tokenisation is an alternative method of raising capital, which is an alternative to traditional forms such as issuing shares, bonds or taking out a bank loan. It consists in entrusting the funds to the developer or the entity managing the investment, while the investor acquires the right to participate in the company’s profits or receives a fixed rate of return on investment. Investing with tokens is very similar to using the stock exchange or issuing bonds, but definitely simpler, automatic and cheaper.
Thanks to the purchased tokens, we can become co-owners of the property because we own a proportional share in the form of tokens or a share in the profits that the property will generate. For example, a developer can issue tokens and one token corresponds to 1 square meter of real estate. By purchasing tokens, we become co-owners of the property and acquire the right to profit from a given investment.
First of all, it is a solution which eliminates the high barrier of entry into real estate investments. We can buy shares and bonds with a much smaller capital, the same applies to cryptocurrencies, but not everyone is interested in solutions that involve greater risk or a complicated bond issue process. This threshold makes it impossible for many people to invest because they do not have enough capital. In addition, the recent turmoil in the markets has complicated the process and forced banks to adopt a more restrictive approach to allocating loans and increasing their own contribution, which will make investing in real estate even more difficult or, sometimes, impossible.
Real estate tokenisation creates such opportunities and facilitates sales. In the traditional form of raising capital, the entity managing the investment would have to sign thousands of contracts with investors. It would require a significant amount of time, building an appropriate structure and signing notarial deeds with each participant, which in practice would make the investment unprofitable. By bypassing these barriers while maintaining full transparency and security, even a person who would like to invest 5000 PLN will be able to do so and adequately share in the profits from the owned property.
Tokenisation in practice
In practice, real estate tokenisation is used in two basic scenarios. In the first one, a company intends to raise capital to purchase real estate and adapt it for sale. The investor buys tokens, which become a loan with a guaranteed rate of return.
In the second, the owner of a rented property issues tokens that constitute the property title and pays the investor a regular rate of return on the lease. Such real estate may be areas rented out to commercial networks or other venues that bring regular income.
Why is tokenisation the future?
In each activity, the most effective optimisation is aimed at avoiding unnecessary costs by acting within the law. Blockchain technology and tokenisation make this possible by eliminating traditional barriers, such as notary or bank fees, thanks to which the investor obtains greater profit compared to forms burdened with such costs, while the managing entity’s shortened process of raising capital streamlines the entire investment.
The form of investing through tokens significantly reduces costs, but also gives more freedom, because we can buy a share in real estate at any time and profit from it. It is possible thanks to fully automated processes that do not require unnecessary formalities. Nothing prevents you from buying real estate around the world at midnight while living in Poland. In addition, tokens allow for quick resale, as we do not have to involve a notary, who would be required for traditional sales.
The blockchain technology itself, thanks to its decentralised database, ensures unprecedented security. The virtually uncopiable information resource contained in this technology protects any information against interference from third parties.
Recording information in many places at the same time allows for using distributed accounting technologies. This solution will enable the creation of a fully transparent real estate register. Everyone has access to all data related to the resources, so in practice we can, for instance, look up the history of a given property.
Real estate tokenisation, thanks to the latest technology, has introduced a number of solutions that will surpass traditional investments performed using traditional forms. The advantages introduced by the blockchain technology include accelerating the process of raising capital by eliminating formalities while maintaining a complete information resource. Saving capital by eliminating intermediaries or costs related to finalising the notarial deed and improving security by decentralising data. However, the biggest benefit is the possibility to share in the profit even with a small amount of money available for investment. Tokenisation allows anyone to become an investor.