The tokenization of real world assets (RWA) is rapidly gaining momentum, with traditional fund managers such as BlackRock and Franklin Templeton now issuing tokenized US government bonds.
However, amidst this proliferation of RWAs, one asset class that has yet to receive enough attention is real estate.Latest statistics It has been revealed that the global real estate market was valued at $613 trillion in 2022, with predictions that it could exceed $729 trillion by 2028. However, despite this potential, real estate remains one of the least liquid asset classes.
To give you some background, assets like stocks and bonds are traded every day, but it can take a decade or more for real estate to change hands. One of the main reasons, of course, is that property owners prefer to hold real estate as long-term assets or for the sentimental value that comes with owning it for generations.
But at the same time, one cannot ignore the fact that the disposal of real estate can be a difficult task, especially if there is an urgent need for cash (liquidity).
Bridging the access gap in traditional real estate ownership
According to tokenization report According to BCG, there is a whopping $16 trillion opportunity to tokenize illiquid assets such as real estate, art, and some commodities. This partly explains why traditional financial companies that were anti-cryptocurrency are actively joining the digital asset bandwagon for the first time.
So what benefits does the real estate market have? Tokenization has made it possible for smaller players and disadvantaged communities to access the traditional real estate market through fractional ownership. Tokenization allows future investors to own a portion of an underlying asset by purchasing a specific number of digital assets that represent a portion of it, instead of purchasing an entire building or large tract of land. It will be.
You may be wondering, what about the nuances associated with real estate ownership, such as notarization of transfer documents and profit distribution in the case of income real estate?
Blocksquare’s real estate tokenization protocol, although in its early stages of innovation, is a great example of one of the few RWA projects that has successfully integrated a secure notarization and registration process into smart contract infrastructure.recent projects completed We tokenized the parking lot of Techpark Ljubljana in Slovakia and performed the first notarization of a tokenized real estate asset registered in the Slovenian Land Registry.
Although it involved some technical operations, the tokenization process involved Blocksquare creating an ERC called “Prop Token” that defines the maximum number of native tokens “BSPT” that will be issued to represent a parking lot. -20 It involved creating smart contracts. Meanwhile, NDP, the real estate company that manages the car park, has drafted a corporate resolution outlining the obligations and rights associated with the car park.
This corporate resolution was then published through the InterPlanetary File System (IPFS) and recorded in the Prop Token smart contract to automate the token issuance process and distribution.
The last and most important step was the notarization with a loan agreement fixing the parking lot as collateral. in this case, block square acted as a lender and issued BSPT tokens, which were distributed to multiple investors by NDP Real Estate Management (borrower). More importantly, the transaction was recognized by the Slovenian Land Registry as it was certified by a certified notary.
Of course, there are many other approaches that real estate RWA projects are using to address the liquidity gap and introduce an enforcement aspect to digital assets. In particular, projects in this sector could benefit from partnering with local governments involved in the real estate market in countries like China. This way, real estate can be tokenized more seamlessly with the benefit of regulators.
Additionally, the current market also requires specialization in certain types of real estate. For example, suppose a potential real estate investor in the United States wants to acquire a luxury property in a tourist destination such as Thailand, and if he decides to go through a traditional real estate agent, it will be a tedious task. Probably. However, with decentralized real estate marketplaces such as Sabai RWA, this kind of property is now just a click away.
What is the future of tokenized real estate?
As mentioned at the beginning, real estate holds immense potential for investors looking to maximize their returns and diversify their portfolios. That's not all!
In addition to the appeal of returns to investors, the real estate tokenization market could soon become the go-to ecosystem for loan borrowers in the commercial real estate (CRE) industry.according to report According to Reuters, the CRE market faced one of the biggest liquidity crunches last year following the Federal Reserve's aggressive rate hike policy. Even private lenders, considered the “last resort,” can only lend to the CRE market at very high interest rates.
What if more real estate were tokenized? This would mean more access to capital at lower interest rates for CRE borrowers, while also allowing smaller lenders to get a piece of the real estate pie. will be possible.
In summary, real estate tokenization is more than issuing and distributing tokens. This ecosystem could easily have a trickle-down effect on other asset classes that have long been financially challenged by over-reliance on illiquid real estate.
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