The search bars are constantly populated with questions on asset tokenizations. The astronomical rise of crypto has led people to wonder if real estate tokenization is even a possibility. The answer returns a theory of real estate tokenization. Real estate tokenization caught on sharply in 2018-19. Currently, it is the market is passing through a slow down. And that is partly owing to the fact that it was overly hyped in the said years.
One early instance of real estate tokenization was an attempt by Aspencoin. The project represented an offering of fractional ownership in the St. Regis Aspen Resort in Colorado. The owners of the resort succeeded in selling off 18.9 percent of the hotel through $18 million in digital tokens. The ICO happened to be the first of its kind to be staged in the U.S. for a supposed single-asset real estate investment trust, as per the Aspen Times. The dream of real estate tokenization was beginning to unfold.
However, the world has seen just as many tokenization failures ever since. The most forgettable among the alleged losses were a high-profile collaboration between tech startup Fluidity and broker-dealer Propellr. They had intended to tokenize a Manhattan luxury condo worth $30 million in 2018. The project went quietly shelved a year later. Both companies later claimed that the real estate tokenized market wasn’t prepared for the ICO launch yet.
Real Estate Tokenization in Figures
Apparently, the hype about tokenization has died down. This actually is untrue. There are several instances that prove that the progress hasn’t stalled. This also doesn’t mean that the benefits and the disruptive power of fragmented ownership have waned. Some figures to express the scenario better:
The total market cap of the real estate digital security market remained over $25 million in December 2020, as per reports from the Security Token Market. By June 2021, the market cap had increased to more than $32 million, showing a 25 percent rise in six months. Regulation imposed by the jurisdiction in real estate tokenization has grown more stringent. Yet, there have been other more successful projects in the past few years. Among the successes, you may count RealT, which has tokenized about 75 properties since 2019. Polymath may be counted as yet another success story. The project has tokenized roughly $2.2 billion worth of commercial real estate, recently, for RedSwan.
Benefits of Tokenization
Tokenization has its benefits. And they are evident. The process lowers the barrier to entry for retail investors seeking to make the cut in the real estate industry. This includes an army of average investors or beginners. However, what happens to be the most significant benefit of real estate tokenization is its creation of more liquidity in one of the largest asset classes in the world. Just $10 trillion of an estimated $317 trillion, that comprises the global real estate, is available to a wider investment base, according to Bain & Company. Real estate tokenization can significantly raise the investment base by eliminating the middleman and increasing the value of assets.
That said, several barriers still remain before tokenization may actually become transformative. There’s still a lot of market confusion regarding the practice and several knowledge gaps. The tokenization market continues to be highly fragmented and, in some cases, not too different from crowdfunding.
Tax and reporting considerations
Issuers of virtual tokens that are backed by real estate properties must be conscious while complying with the laws and regulations dictated by the jurisdiction where the tokens are offered. The steps that issuers must take involve including active verification of accredited investors.
Virtual tokens are subject to more regulation than just securities. Some tokens may also be regulated under anti-money laundering, money-service laws and regulations, and general anti-fraud and consumer-protection laws. Issuers and investors are required to consult the appropriate legal representation and tax professionals to develop a complete strategy.
HashCash Real Estate Tokenization Platform
HashCash has accomplished multiple projects in the following categories:
- Commercial Real Estate Tokenization – involves property ownership to be tokenized with audited fractionalization logic that is compliant with all standards and regulations. It is executed over a scalable real estate tokenization platform.
- Residential Real Estate Tokenization – makes it possible for multiple investors to own a share of major properties across geographies. Thus, allowing them to earn capital gains and dividends from the same.
- Single Real Estate Tokenization – is implemented through a real estate tokenization platform. In this case, you can tokenize your single real estate, reducing the liquidity premiums by 25%, at the same time, raising funds for various projects.
- Trophy Real Estate Tokenization – allows you to liquidate your trophy asset through tokenization of the real estate while raising funds for various projects within a secure, compliant, and immutable ledger.
Real estate tokenization will only make it big once a major institutional investment gets involved in the market. This should cause sufficient ripples to get other inventors drawn into such projects. The market needs the boost of one major success to transform this high-yielding asset-backed cryptocurrency sector.