Blockchain technology continues to evolve despite all the discussions, prejudices, regulatory obligations, and speculations. An already-existing application of blockchain technologies — tokenization — has recently found itself a real-life use case in real estate.
Tokenization has been around almost as early as blockchain appeared, and it has been looking up to a bright future from day one. Estimations by McKinsey show that the volume of tokenized digital securities will reach $5 trillion by 2030.
Real estate tokenization seems like it will significantly contribute to this growth. The market size for real estate tokenization was $2.7 billion in 2022, and its growth trajectory indicates that it could reach $16 trillion by 2030 according to a report by the Boston Consulting Group.
Let's look into real estate tokenization and identify what's fueling this growth.
Tokenization refers to a digital representation of an asset on a blockchain. Any asset can be tokenized, including investment tools like bonds and equities, physical assets like art and real estate properties, and intangible valuables like identity and data.
Essentially, a real estate property is tokenized by dividing it into fractions and automating the operational process using smart contracts. The first step is to divide the property's value into smaller bits, depending on the property owner's choice. Then, the property can be purchased bit by bit through these tokens, either by many different investors or by one person.
Sabai Ecoverse, which began in Thailand and is expanding globally, aims to democratize real estate investment for a broader audience who may not have access to large sums of capital.
The digitalization of real estate diminishes market barriers, augments liquidity, enhances transparency, and streamlines processes within the real estate sector. Blockchain technology offers heightened liquidity, fractional ownership, and fortified security owing to the immutable nature of blockchain.
One of the advantages of tokenizing real estate is that it opens up the real estate market to smaller investors, thereby increasing movement and demand for all properties. This method results in increased liquidity and decreased barriers to entry to the real estate market.
Moreover, smart contracts handle the whole process of tokenizing and selling on-chain, leading to transparency, automation, and security. A smart contract can automatically sell a token as soon as the conditions are met, which is much faster, cheaper, and error-free than a human intermediary.
Finally, the added benefit of blockchain technology appears in real estate tokenization as well: Security and transparency. All the sale and ownership processes take place and are recorded on-chain. This data is accessible to anyone and is almost impossible to tamper with. Therefore, all transactions remain trustworthy.
The benefits of real estate tokenization are amplified when the method is applied on a larger scale, where handling property is a part of everyday life.
We envision a future where blockchain-based virtual real estate isn't just about digital plots but streamlining real-world real estate processes. Technology such as Etherland's has the potential to reduce costs, enhance security, and create entirely new opportunities for the industry.
However, the tokenization of real estate is not without its challenges. One of the primary concerns is the lack of a consistent regulatory framework that governs the market. Different jurisdictions have varying rules and regulations surrounding digital assets, leading to confusion and uncertainty for investors and issuers.
Despite its cons, the real estate tokenization market is on a trajectory to grow. In addition to digitalization and on-chain storage, tokenization offers more benefits to real estate owners. Blockchain technology improves real-world real estate transactions, streamlines documentation, and enhances security, thus merging the virtual real estate world with the world of cryptocurrencies. Blockchain technology is improving rapidly. If the technical problems are solved and the regulatory gaps are filled, real estate tokenization might quickly become a mainstream application for all property owners.
