With over 1.37 billion population and trillions of dollars worth of real estate, buying and selling real estate within days is impossible in India.
The real estate sector also did not have a active trading market as there are no financial exchanges supporting its trading and it also requires lengthy paperwork and many process to follow.
However, gold and real estate are the two areas, where Indian see stable and long term investment. Though selling & buying gold in short time is possible, but that is not in the case of real estate, as it is
known for its high entry cost and extremely low liquidity.
But soon, this will be thing of the past, as Blockchain technologies will help tokenized real estate assets that can be traded on the exchange from any part of the world.
Though the concept of tokenizing asset in India is in a very nascent stage, some work is already started. The largest real estate tokenization in India is already started, where one million square foot property located at Manesar, Gurgaon is being tokenized on the DigiByte Blockchain.
The project valued at US $40 million property is being tokenized exclusively by EGW Capital, a Blockchain investment bank who has a vision of tokenizing real world assets like real estate, stocks and bonds.
Speaking on this new development, EGW Capital CEO Rahul Kumar said, “We are in talks with many real estate builders and developers around the world. Tokenization over the Blockchain makes the transactions immutable and fully secured. A investor sitting in the US can easily purchase fractional ownership in the property without going through legal mess.”
Understanding the current process
Before we move to know how tokenization can help the real estate sector, but first we must know how today, we can invest in the real estate sector.
Traditionally, there are three ways to acquire real estate asset. Let us understand this with an example.
First way is that you pay full price in cash and buy a property, second way you put down 20% (or more) and take out a bank loan or the third way is you find investors willing to fund your venture.
But, now we fourth way to buy real estate, which serves as both a tool for investment and acquisition, affording individuals the opportunity to participate in investments that would otherwise have been impossible in the past.
How tokenization is done
Tokenization is directly related to the Blockchain. The real estate tokenization breaks down a property’s ownership into millions of small pieces represented as tokens on a Blockchain. These tokens are generally classified as security tokens or asset-backed token, since they have a property as an underlying security.
The real estate tokenization can be used by the developers for both constructed and under construction properties. A investor gets an access to a fixed income and has a potential of earning through the price appreciation of the underlying property.
These tokens are either placed to the high net-worth investors or are directly made available to the public in an Initial Exchange Offering (IEO). The tokens can also be initially purchased by the large investors and can then be packaged for retail investors to boost confidence.
Successful real estate tokenization
Apart from India, tokenization of real estate assets are in full swing across the globe. US based SolidBlock and INX Ltd has recently announced that it is listing three properties on the exchange.
The properties are in London, England with flexible investment in prime residential London-area real estate (rolling fund; market value – up to USD $26 million); Phuket, Thailand, where it is expanding a luxury resort destination in one of Asia’s hottest destinations (market value – USD $12 million); and a property based in New Haven, CT – Remodeling and conversion of a historic property in this Ivy League US town (market value – USD $5 million).
SolidBlock is one of the first adopter of tokenizing real estate assets and successfully tokenized world’s first commercial real estate security token offering (STO) by raising $18 million for the Aspen St. Regis Resort in 2018.