Real Estate Tokenization
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Last updated
Last updated
The real estate market is known for its inflexibility. In this field, even simple transactions can take days, weeks, or months and involve offline meetings and the signing of a large number of documents. Can this be changed? Absolutely! And tokenization will help with that.
Real estate tokenization is the process of attaching certain rights to a property to one or more crypto tokens on the blockchain. Real estate tokens are technically no different from cryptocurrencies, except that their value is backed by real existing properties.
Tokenization is a relatively new process in the real estate market, so there are no widely accepted standards yet, and each tokenization case may have its own peculiarities. However, there are several common steps in this process applicable to all cases:
The process of tokenization begins with the selection of the object and the establishment of the acquisition price. At this stage, a thorough check of the legal and financial integrity of both the real estate itself and the transaction is conducted. This approach helps protect future investors from potential unforeseen risks.
At this stage, legal professionals draft the necessary contracts and agreements to ensure the legal foundation of tokenization. This step is particularly important as tokenization must comply with both international standards and local laws.
After preparing the legal foundation, a limited number of tokens are issued. Typically, they are created on the basis of an existing blockchain, allowing the platform to avoid the resources required for developing and maintaining its own network. For example, Sabai Property tokens are built on the well-known Polygon blockchain, which offers a high level of security and low transaction fees.
Next, there is the registration of applications from investors wishing to acquire real estate tokens, and their verification for compliance with requirements. In particular, this process includes identity verification of investors (for example, passing KYC).
Real estate tokenization involves the development of not only a legal framework but also a technical one. It should include a set of smart contracts – immutable automated software algorithms that will take on a significant portion of the work with real estate, such as distributing rental income among investors.
After all preparatory stages are completed, the sale and distribution of tokens to previously registered investors take place.
While tokenization is not widely adopted in the real estate industry today, it is rapidly integrating into the sector as it can offer several advantages compared to traditional investments.
Tokenization is closely associated with fractional ownership. Breaking down real estate into a large number of tokens opens up the market to investors with limited capital, simplifying the process for developers to sell properties. In Sabai Property, the entry barrier is only $50!
Traditional real estate transactions are typically lengthy and involve a significant amount of bureaucratic processes. Tokenization addresses this issue, as trading tokens is technically similar to trading regular cryptocurrencies. This significantly streamlines transactions with tokenized real estate and enhances market liquidity.
Tokenization relies on blockchain technology, a secure way of storing and processing information. The integrity and immutability of the network are supported by a large number of users, making any attempt at fraudulent data alteration destined to fail.
Additionally, blockchain is structurally transparent, allowing any user to openly examine all transactions on the blockchain. Transactions do not contain the personal data of wallet owners, only their public addresses, making blockchain a transparent and anonymous tool for tracking real estate tokens.
Traditional ownership of investment real estate usually involves intermediaries, such as government cadastres, the company the property is registered to, depositories, and many other structures. With tokenization, the chain of intermediaries is minimized, as real estate tokens are stored directly in the crypto wallets of the immediate owners.
The absence of third parties also enhances the efficiency of tokenized real estate. To transfer tokens to a user, one simply needs to create a transaction, after which the token will be in the wallet of the new owner. This process is much faster than traditional transaction procedures, which can take several days.
Real estate tokenization is an innovative solution designed to address most of the issues that have been prevalent for centuries. In the future, tokenization may become one of the widely accepted formats for real estate investments due to its undeniable advantages over alternative approaches.
🎓 Read more of our expert articles on cryptocurrency, blockchain, and tokenized real estate investments at Sabai Academy!
