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Tokenization of Real Estate – The Future of Buying and Selling Properties

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    June 28, 2024 Last Updated: June 28, 2024

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Needless to say, the real estate market has been witnessing a revolutionary shift through the process known as tokenization. This transformative approach involves converting real estate assets into digital tokens, making them more accessible, liquid, and secure.

The tokenization market size, reflecting its broad application across various sectors, has seen exponential growth, rising from $2.8 billion in 2023 to an expected $3.45 billion in 2024, at a compound annual growth rate (CAGR) of 23.2%. This growth has been driven by factors such as the expansion of mobile payments, eCommerce, data breaches, increasing digital transformation, fraud prevention, and consumer privacy concerns.

The tokenization market is poised for even more significant growth in the coming years. It is projected to reach $8.32 billion by 2028, growing at a CAGR of 24.6%. This forecasted growth is attributed to the rise of cross-border payments, the increasing use of mobile and contactless payments, enhanced healthcare data security, and improved supply chain security, all underpinned by advancements in decentralized finance.

Tokenization Market Size

Key trends shaping the growth of real estate tokenization include blockchain integration, the tokenization of physical assets, the rise of NFTs, the use of AI and machine learning, and the emergence of tokenization as a service (TaaS). Currently valued at $200 million, tokenized real estate represents just 0.5% of the global $317 trillion real estate market, indicating significant growth potential. Deloitte forecasts this market will reach $1 trillion by 2030, while ResearchAndMarkets predicts it will hit $1.5 billion by 2025, highlighting its rapid expansion and immense potential.

eal estate tokenization enhances liquidity through fractional ownership and easier transactions, provides greater transparency and security via blockchain, and lowers barriers for smaller investors while offering new portfolio diversification methods. By using real estate tokenization platforms, stakeholders can streamline property investment, making it more inclusive. This blog explores the benefits, facilitating platforms, processes, challenges, and costs of real estate tokenization, highlighting its potential to create a more dynamic and accessible property market.

What is Tokenization?

Tokenization refers to the process in which some sensitive data – like credit card details – is substituted with a representative – non-sensitive – value known as a token. A tokenization system in place helps the token to refer back to the sensitive data.

The real estate market supply chain suffers huge losses caused by liquidity issues, middlemen, supply chain management issues, and so on. These issues can be mitigated by leveraging tokenizing real estate.

Although the real estate market has been slow in adopting new technologies, this might change with real estate tokenization as it has been picking up pace.

In the context of blockchain, tokenization is the process of issuing a blockchain token, also known as a security token or asset token. Blockchain tokens are the digital equivalents of real-world assets. A real-world asset is said to be tokenized when it is represented virtually as cryptocurrency.

What is Real Estate Tokenization?

Real estate tokenization is the process of tokenization applied specifically to real estate properties. Thus, in this form of tokenization, a property is converted to its equivalent digital tokens.

The first ever real estate tokenization transaction took place in 2018 completed by St. Regis Aspen Resort in Colorado created a single-asset REIT on the Ethereum blockchain. Since then, numerous such transactions have taken place.

On the other hand, property tokenization platform development is a digital marketplace that facilitates the conversion of real estate assets into digital tokens. These platforms leverage blockchain technology to ensure transparency, security, and efficiency in real estate transactions.

Some of the most popular real estate tokenization platforms include:

real estate tokenization platforms

  • Harbor

This platform specializes in the tokenization of various asset classes, including real estate with funds on Ethereum worth $100 Million. They offer services like token issuance, investor management, and secondary market trading.

  • RealT

Founded in 2017, RealT is a platform that allows users to invest in fractional shares of U.S. real estate properties. Each token represents a fractional ownership interest in a property and can be bought and sold on the RealT platform.

  • ADDX

A Singapore-based platform that has tokenized over $100 million in assets, offering a secure and compliant way for accredited investors to trade tokenized assets, including real estate assets.

  • Solidblock

The platform provides digitization of real estate processes using Web3 technology to ensure transparent transactions. They aim to build an ecosystem involving property owners, asset managers, digital investment banks, and more.

  • Brickblock

Known as the first real estate tokenization platform in Europe, Brickblock focuses on transforming real estate assets into digital tokens. It offers services for tokenizing real estate properties.

These platforms showcase the growing trend of real estate tokenization which enables you to attract potential investors to participate in fractional ownership of real estate assets.

Real Estate Tokenization

Key Benefits of Real Estate Tokenization

Tokenizing real estate brings several benefits to the forefront. It resolves the issue of illiquidity, decreases the barrier to entry, and enhances the efficiency of transactions.

Real Estate Tokenization Benefits

1Enhanced Liquidity

By improving liquidity, real estate tokenization lets investors trade their tokens quickly and seamlessly on a secure blockchain network. The requirement for intermediaries is eliminated entirely.

2Improved Transaction Efficiency

Traditional transaction processes are lengthy and take a long time to accomplish. Exchanging tokens can be comparatively fast. Therefore, the time that is required for a property seller and buyer to wait for transferring the ownership is significantly reduced.

Smart contracts automate the process of buying and selling properties with instant settlements and ownership transfer. Moreover, tokenization decreases transaction costs by leveraging fast, P2P transactions on a blockchain platform.

3Facilitates Fractional Ownership

This is one of the leading benefits of tokenizing real estate. Property investors can diversify their portfolios while minimizing risk exposure simultaneously by owning a fraction of ownership in real estate.

4Trust and Transparency

The inherent nature of blockchain promotes security and transparency by providing immutability. Hence, tokenization of real estate promotes trust among the parties involved and reduces the entry points for fraudulent activities.

Also Read: Top 10+ Blockchain Trends To Watch Out For In 2024

The Process of Real Estate Tokenization

Tokenization of real estate involves dividing an asset into digital tokens, where each token represents a fraction of the property. Real estate tokenization opens the avenue of realty investment to a wide range of buyers by breaking down expensive properties into smaller affordable units.

Blockchain acts as the backbone for developing your real estate tokenization platform as it provides a highly secure and transparent medium for storing and transferring tokens.

Real Estate Tokenization Process

Another technology that governs real estate tokenization is smart contracts. The conditions that apply when token transactions take place are defined in a smart contract. Thus, you need to develop a smart contract to facilitate tokenizing real estate transactions.

A smart contract is a self-executing agreement that defines the conditions of a contract and automatically executes transfers upon the successful fulfillment of specific conditions.

The pairing of blockchain technology with smart contracts not only eliminates the need for an intermediary but also streamlines the transaction process and makes it convenient, more efficient, and highly secure.

Also Read: Metaverse Real Estate Platform Development: Future Outlook for Property Ownership

How To Tokenize Real Estate ?

As all real estate properties are unique, there is no one-size-fits-all approach. Moreover, it is a detailed process that requires paying utmost attention to details of a financial, legal, and technical nature. These are the four simple steps to launch a real estate tokenization campaign:

Steps To Tokenize Real Estate

Step 1 :Select Asset Type, Location, and Type of Shareholder

Start with choosing the asset type that you want to digitize and the jurisdiction to launch your campaign. Specify the type of shareholder and relevant regulations that play an essential role in structuring your project.

Step 2 :Ensure Complete Compliance of Applicable Regulations

Take care of the legal structure of your tokenization project as well as create a legal wrapper around the real estate property. This will ensure complete compliance with applicable regulations.

Step 3 :Choose the Technology

The next step in tokenizing a real estate property is to choose the most appropriate technology. Also, ensure that you carry out the entire process of converting the property into its equivalent digital token carefully to avoid any legal issues that could affect the investment later.

Step 4 :Tokenize It

Finally, start tokenizing your real estate asset. Once done, you can distribute real estate security tokens to represent ownership of the asset. It can also be listed for trading on relevant digital exchanges.

How Does Real Estate Tokenization Platform Make Money? 

Real estate tokenization platforms offer a unique opportunity to disrupt the traditional investment landscape. But how do you translate this innovation into revenue streams?

Well, here are several effective strategies to monetize your real estate tokenization platform:

  • Transaction Fees

With your real estate tokenization platform, you can charge a fee for each transaction made. Try going for the option of a fixed amount or a percentage of the transaction value. 

Note that the platform can also charge fees for token creation, transfer, and trading, as well as for other services related to the property tokenization process. 

  • Subscription Model

A subscription model allows you to charge users a regular fee to access the platform’s services. This fee can be monthly, quarterly, or annually, depending on the platform’s pricing structure. 

This is a great way to allow users to access the real estate tokenization platform’s services at a lower cost than paying for each transaction individually. 

  • Value-Added Services

Real estate tokenization platforms can offer additional services beyond the tokenization process. These value-added services can include property management, due diligence, and legal services. With all these services you can charge a fee which can be a flat rate of the value of the property being tokenized. 

  • Secondary Market Revenue Sharing

You can also generate revenue from the secondary market by creating a property tokenization platform. You can charge a fee for listing tokens on the secondary market or for facilitating trades between buyers and sellers. Make sure that the fee is competitive yet generates enough revenue to maintain the platform and reward stakeholders.

Issues Related To Real Estate Tokenization

Real estate tokenization offers a slew of advantages like better liquidity and fractional ownership, however, it also has certain limitations that should be considered before delving into it.

Real Estate Tokenization Issues

1Little to No Regulatory Framework

As there are no intermediaries involved in such transactions, there is a need to have a regulatory framework in place. There might be a lack of clear guidelines or specifications governing the custody, issuance, and trading of tokenized real estate assets. Such uncertainty can pose legal and compliance risks for both issuers and investors.

2Limited Market Acceptance

Although the interest in real estate tokenization is on the rise, it is yet a relatively new concept. Thus, the market acceptance and adoption is low. Throw other factors into the mix like low awareness, regulatory uncertainties, and doubt among traditional investors and market acceptance goes even low.

3Tech Risks

The concept of tokenizing real estate rests on blockchain technology and smart contracts. Although these are secure and transparent media, they suffer from technical issues like cyber attacks, network congestion, and defects in software. Such vulnerabilities can be exploited to accomplish data breaches, loss of funds, and data thefts.

Although the disadvantages of real estate tokenization look grim, they are not inherent to the concept. In fact, these are challenges that the industry is presently facing as it continues to grow.

With the advancement in the technology and infrastructure supporting the tokenizing of real estate, these challenges will grow less in intensity, thus offering a fruitful industry to potential investors.

What is the Cost of Building a Real Estate Tokenization Platform? 

Finally comes the million-dollar question – the cost. Well, the cost of building a real estate tokenization platform can vary significantly depending on several factors, including the features, integrations, and customization of the tokens. 

Accordingly, businesses across industries estimate the cost of creating a real estate tokenization platform. While it is difficult to give an exact figure for tokenization platform development cost. However, it typically ranges between $35,000 and $200,000 or more. 

Development Phases Cost Breakdown
Consultation 10%
UI/UX Design 20%
Platform Development 45%
Testing and Quality Assurance 15%
Maintenance Cost 10%

Please note that this is just a rough estimate of the development cost parameters. It’s important to consult a trusted real estate tokenization platform development company for comprehensive services.

Real Estate Tokenization Services

6 Factors Affect Real Estate Tokenization Platform Development Cost

Developing a real estate tokenization platform involves several intricate and costly factors that need careful consideration. As the market for tokenized real estate continues to expand, understanding these cost drivers is essential for anyone looking to invest in or develop such a platform.

From selecting the appropriate blockchain technology to ensuring robust data security and regulatory compliance, each factor plays a significant role in the overall development cost. Additionally, the location of the development team and the integration of secondary market support are crucial aspects that can influence the budget and success of the platform.

In this section, we will explore six key factors that impact the cost of developing a real estate tokenization platform, providing insights into the complexities and requirements of this innovative market.

Factors Impact Development Cost

1Blockchain Technology

The choice of blockchain technology is a crucial factor in determining the development cost of a real estate tokenization platform. Different blockchains offer varying levels of security, scalability, and functionality. Platforms like Ethereum, Binance Smart Chain, or Solana come with different cost structures, development complexities, and transaction fees.

Selecting a robust and efficient blockchain can enhance the platform’s performance but can increase initial development expenses due to the need for specialized expertise and resources.

2Data Security

Ensuring robust data security is crucial in the development of a real estate tokenization platform. Implementing advanced encryption, secure authentication mechanisms, and comprehensive data protection protocols can be costly but is essential to protect sensitive user information and transaction data.

Investment in cybersecurity measures, regular audits, and compliance with data protection regulations like GDPR can significantly add to the overall development costs but are crucial for maintaining user trust and platform integrity.

3Asset Tokenization

The process of asset tokenization involves converting real estate assets into digital tokens, which requires sophisticated smart contract development and integration with blockchain technology. The complexity of the tokenization process, including ensuring accuracy in property valuation, legal compliance, and seamless integration with real-world assets, can drive up development costs.

Additionally, creating user-friendly interfaces for managing and trading tokens adds to the overall expenditure, making asset tokenization a significant cost factor.

4Location of the Development Team

The geographical location of the development team plays a significant role in determining the cost of building a real estate tokenization platform. Development teams in regions with higher living costs, such as North America or Western Europe, typically charge more than those in countries with lower living costs, such as India or Eastern Europe.

While offshoring can reduce expenses, it is essential to balance cost savings with the need for high-quality development and effective communication.

Region Average Hourly Rate
USA $100-$180
Western Europe $80-$150
South Asia $30-$80
North America $45–250
Australia $40–150

5Regulatory Compliance

Navigating the complex regulatory landscape of real estate and financial markets is a critical and costly aspect of developing a tokenization platform. Compliance with local and international laws, including securities regulations, anti-money laundering (AML) standards, and know-your-customer (KYC) requirements, necessitates substantial investment in legal expertise and regulatory technology.

Ensuring ongoing compliance to avoid legal pitfalls and gain user trust can significantly add to the development and operational costs.

6Secondary Market Support

Supporting secondary market trading of tokenized real estate assets requires building or integrating with secure and efficient trading platforms. This involves developing features for real-time trading, liquidity management, and compliance with trading regulations.

The cost of developing a robust secondary market infrastructure includes not only initial development but also continuous updates and maintenance to handle trading volumes and ensure a seamless user experience. This capability enhances the platform’s attractiveness but can substantially increase development expenses.

Partner with Blocktunix for Real Estate Tokenization Platform Development

As a reputed real estate tokenization company, Blocktunix understands the intricate details and costs involved in creating a robust and secure platform. From selecting the right blockchain technology to ensuring compliance with regulatory requirements, every aspect demands careful planning and investment. Our expertise in data security and asset tokenization ensures that your platform is not only functional but also secure and trustworthy.

At Blocktunix, we leverage our global team to provide high-quality, cost-effective development services, addressing challenges like the development team’s location and secondary market support. Our comprehensive solutions ensure your real estate tokenization platform meets the demands of today’s dynamic market.

Last but not least, the development of a real estate tokenization platform involves navigating various cost factors, each contributing to the platform’s success and reliability. By partnering with Blocktunix, you gain access to a team of seasoned professionals dedicated to delivering innovative and secure tokenization solutions, positioning your business at the forefront of the real estate market’s digital transformation.

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