Real estate tokenization involves generating a digital representation of a property, referred to as a security token, which is then recorded on a blockchain—a secure and transparent distributed ledger. Investors can acquire these security tokens, granting them fractional ownership of the property. Despite various challenges associated with this process, blockchain technology, particularly in real estate tokenization, has effectively addressed these issues.

After the property is tokenized, investors can trade their tokens on a secondary market, enhancing the liquidity and accessibility of real estate investment for a broader range of investors. Furthermore, smart contracts can automate numerous tasks associated with real estate transactions, including rent collection and property management.

Blockchain technology underpins real estate tokenization. It operates as a distributed ledger, recording transactions across a network of computers, ensuring transparency, security, and immutability. Within this ecosystem, smart contracts are crucial for automating and executing the terms of tokenized real estate transactions.

Smart Contracts These are self-executing contracts with the terms of the agreement embedded in code. In real estate tokenization, smart contracts automatically enforce ownership rights, distribute rental income, and facilitate token transfers when properties are bought or sold. Their tamper-proof nature reduces fraud risk and fosters trust among participants.

Tokenization Platforms Specialized platforms or services are used to tokenize real estate assets. These platforms create digital tokens that represent fractional ownership shares in a property. Property owners or developers collaborate with tokenization providers to initiate this process.

Property Selection: The process starts with selecting a property for tokenization. Property owners or developers evaluate the potential asset, considering factors like location, value, and market demand.

Due Diligence: Comprehensive due diligence is conducted to ensure the property's legal and financial aspects are in order. This step is crucial for mitigating risks associated with tokenization.

Legal Framework: Legal experts draft the necessary contracts and agreements to establish the legal framework for tokenization. Compliance with local and international laws is a critical consideration.

Token Creation: Once the legal framework is established, digital tokens are created to represent fractional ownership in the property. Each token corresponds to a specific percentage of ownership.

Investor Onboarding: Investors interested in the tokenization project go through a verification process to comply with regulatory requirements. This process may include identity verification and accreditation checks.

Smart Contracts: Smart contracts are developed and deployed on the chosen blockchain platform to govern the tokenized asset. These contracts automatically execute transactions, including the transfer of tokens and the distribution of income.

Token Sale: The tokens representing ownership shares in the property are offered for sale to investors. Depending on the project, these tokens may be sold in a private or public offering.

Ongoing Management: After tokenization, the property is managed according to the terms specified in the smart contracts. This includes automating processes such as rental income distribution, property expenses management, and other financial aspects through blockchain technology. Smart contracts ensure these operations are executed transparently and efficiently.

Secondary Market Trading: In certain instances, tokenized real estate assets can be traded on secondary markets. This feature allows investors to buy or sell their ownership shares without the need to wait for the entire property to be sold. Secondary market trading enhances liquidity and provides flexibility to investors, potentially increasing the attractiveness of tokenized real estate investments.

The real estate industry has undergone a total makeover as a result of the use of blockchain technology. It has made it easier for people to own digital real estate, giving access to those who were previously shut out owing to a lack of resources and masking problems like a lack of transparency and trust.

Tokenization of real estate is akin to crowdfunding, in which an asset is divided into smaller portions via the use of a smart contract-a piece of automated code stored on a blockchain. A portion of the real estate belongs to whoever purchases or holds a token. They have a claim on the underlying asset, including any profits or losses incurred.

Any type of real estate, including residential, commercial, and trophy properties, may be tokenized. Fractional slices of expensive commercial buildings, including malls and retail centres, might be used to lower the cost of investments. Tokenization of apartments in multi-story residential skyscrapers can expedite sales and acquisitions. Through tokenization, one might raise money for initiatives while selling their prize asset.

Benefits of Real Estate Tokenization

Real estate tokenization offers numerous advantages for both property owners and investors:

• Increased Liquidity One of the primary benefits of tokenization is enhanced liquidity. Traditional real estate investments are typically illiquid, with property sales often taking months or even years. Tokenized real estate allows for quicker and easier transactions, making it simpler to buy or sell ownership shares.
• Access to Global Markets Tokenization enables investors worldwide to participate in real estate markets that were previously inaccessible due to geographic limitations. This global accessibility expands the pool of potential investors significantly.
• Fractional Ownership Tokenization allows for fractional ownership, enabling investors to buy as much or as little of a property as they want. This lowers the financial barrier to entry, making real estate investment more inclusive.
• Transparency and Security Blockchain technology ensures transparency by recording all transactions on an immutable ledger. This reduces the risk of fraud and enhances trust among participants.
• Cost Efficiency Traditional real estate transactions involve various fees, such as agent commissions, legal fees, and title insurance. Tokenized transactions often have lower associated costs, reducing the financial burden on both buyers and sellers.

Post-tokenisation management of Real Estate tokens

The digital revolution in real estate tokenization is gradually unfolding, with the market still in its early stages. Currently, only $20 billion USD of real estate is represented on the blockchain, with $194 million USD traded on secondary markets. Moore, a global accounting firm, estimates that by 2026, $1.4 trillion USD in property assets will be digitally represented.

Empirical data shows that tokenized real estate yields comparable returns to REITs, around 7% annually. Although the market is still developing, preliminary data highlights the benefits of real estate tokenization, which are expected to grow as infrastructure and regulations advance.

Comparing REITs (Real Estate Investment Trust) and RETs (Real Estate Tokens) across various aspects