Photo by Erwin Soo
Investing in the real estate industry used to be only for the big boys once upon a time. It’s a highly lucrative industry as property isn’t like other business and trade sectors. You’re usually dealing with large sums of money, and many different people play their part in the long, arduous journey of selling and buying. Securitization has become flawed over the many decades, and these issues came home to roost in the 2008 global economic crash. The crash happened because of irresponsible auditing of properties, which gave them inaccurate asset valuations. These properties went on to become issues as bond investments that were again inaccurately overvalued. All these factors lead to inaccurate risk assessments because the mortgages issued to the properties were sold to people who had no business being involved with them. This leads to shocking care and control of the credit pool and slowly but surely, it all collapsed. But if there’s one industry in the world that will recover faster than any other, it’s the real estate market. Tokenization is making the selling and buying of real estate not only quicker but more honest than ever before.
The smart new way
So you might be scratching your head and thinking to yourself what tokenization means. It’s a fairly new concept that has been taken from the cryptocurrency Bitcoin. It works in the blockchain mechanism in the fact that a token has a market value and it’s full ownership history exists in the public forum. In terms of data, security tokenization replaces sensitive data with a unique identification symbol. Inside all the relevant information is intact, but it’s broken up into a meaningful value that exudes key phrases and components. Essentially it converts rights to an asset into a digital token which is a real-world representation of the asset on a blockchain. A smart contract for that property can be made into a token which is a value of the real asset. Any property can be tokenized with multiple token holders, i.e. those holding the smart contracts, at any time. At the core of this concept are fluidity and honesty. A token’s ownership history is public knowledge, and because it’s a tradeable entity, there is no need for an intermediary to essentially do real estate transactions.
The token history is open for all to see and the value of the token is also open to see. This means you deal on a peer-to-peer basis with just two parties acting as the seller and buyer. All the transactions are done via the blockchain. However, the blockchain needs to exist somewhere so all those involved can keep track of it. That’s where the global real estate blockchain cloud platform comes in. Think of these as servers, which all hold their own properties, tokens and transactions. Various real estate companies all over the world who want their real estate portfolios to be modernized are using tokenization. Just like any cloud blockchain platform, you have to register your account then register your cloud wallet. Take a look at the I-House token system which has these two methods and then goes onto certification and uploading your real estate assets ready to be split and tokenized.
What could this mean?
What could this possibly mean for the future of real estate transactions? For a start, there will be more diversification of the buyers and token holders. Because the properties can be split by the owners, they no longer have to rely on investors that hold large chunks of their asset in bonds and mortgages. With more people investing in a lower financial threshold, you as the originator, i.e. asset owner, get to sleep easier. On top of this each property can be split up into various token numbers so for example, instead of selling several floors of a commercial office building at a time, you can see them in one floor at a time. There’s also no need for mediary as the transaction is public and done via two parties. It’s almost like buying and selling stocks but for individual assets and you’re working on a peer-to-peer basis.
Tokenization sounds complicated at first, but actually, it’s making transactions simpler. With a smart contract that has been made into a token, the value of it is public record. You know who all the previous owners were and have all the shared information of their transactions at your fingertips. The properties are much more likely to be more sensibly audited when their token value is what auditors are to keep in mind. Since real estate is now split up, the real-world value of a property is more accurate as you can calculate what each token represents rather than information lost in the collective data.