Blockchain-powered asset tokenization allows investors to gain exposure to illiquid asset classes that would otherwise be difficult to invest in. Arguably, the most prominent use case for the tokenization of assets is real estate.
In this guide, you will learn everything you need to know about real estate asset tokenization and how you can get started with investing in real estate-backed tokens to gain exposure to this popular asset class.
In a nutshell:
Blockchain technology enables you to invest in digital tokens that represent a claim on a physical asset, such as a real estate property, fine wine, or even artwork. Through the process of tokenization, businesses can raise capital by selling fractional ownership in illiquid assets to investors who want to gain exposure to asset classes that are otherwise difficult to access. For example, a property developer could sell real estate-backed tokens that represent part ownership in a recently built development.
What is Asset Tokenization?
Asset tokenization refers to the process of taking a physical and/or illiquid asset and turning the rights to it into a digital token that operates on a blockchain.
Assets that can be tokenized include but are not limited to:
- Art
- Collectibles
- Debt
- Equity
- Investment funds
- Vintage cars
- Music
- Real estate
- Luxury items
As you can see, the world of tokenization is vast and opens up entirely new investment opportunities for both retail and institutional investors.
For example, say you would like to add art exposure to your portfolio but cannot afford to buy a Picasso painting for £49.8 million ($60.75 million). In that instance, you could buy a digital token that represents a one percent ownership in a tokenized painting that is valued at $1,000,000 for $10,000. Once the painting is sold for – let’s say – $2,000,000 at the next auction, your tokenized share in the painting will then be worth $20,000. Moreover, you would trade your art token in between auctions for whatever value you and a buyer can agree on, judging by how the art market for this type of art is performing.
While the idea of tokenized artwork may sound a little futuristic, this is already happening. In 2018, an Andy Warhol painting titled “14 Small Electric Chairs (1980)” was tokenized and auctioned by art investment platform Maecenas. The auction raised $1.7 million for 31.5 percent of the painting at a valuation of $5.6 million.
Benefits of Tokenization
Decreasing the barriers to entry for investors who want exposure to physical and/or illiquid assets is one of the main selling points for asset tokenization. But there are more.
Other benefits of tokenization include:
- Provides a new avenue for businesses to raise capital
- Reduces investment risk due to lower capital requirements
- Increases liquidity of illiquid assets
- Reduces reliance on costly intermediate to lower transaction costs for all stakeholders
- Increases transactional transparency for all stakeholders
How to Invest in Tokenized Real Estate
Tokenizing real estate is arguably the most popular tokenization use case today. Real estate tokenization refers to turning claims to a physical property into digital tokens that can then be sold to investors to provide them with fractional ownership in a real estate asset.
Buying real estate-backed tokens feels like a combination of buying bitcoin and investing in a startup at an online crowdfunding platform.
Let’s look at the steps.
- First, you need to set up a digital wallet that enables you to hold the tokenized asset you want to buy. In most cases, this will be an Ethereum wallet that supports different types of Ethereum-based tokens.
- Next, you need to sign up for a real estate token investment platform that enables you to purchase tokenized real estate in the currency of your choice. (Below, you will find a list of leading platforms you can check out!)
- Then, you browse through the tokenized properties that are available to gauge which one suits your investment goals and risk preference.
- Once you have found suitable investable properties, you proceed to buy the offered real estate tokens for an amount that you feel comfortable with.
- Finally, you store the tokens that you have purchased securely in a digital wallet.
The secondary market for real estate-backed tokens is still very small. While that is expected to change in the coming year as this market segment of the digital asset market matures, it is better to treat tokenized real estate investment as long-term investments that you intend to hold onto for several years.
Top Real Estate Tokenization Platforms
Real estate tokenization is a popular blockchain use case which is why there are several startups dedicated to the issuance and sale of real estate-backed tokens.
Below, you will find a list of leading real estate tokenization platforms that you could use to invest in real estate tokens.
| Platform | Link | Launch Year | Location |
|---|---|---|---|
| Atlant | https://atlant.io/ | 2017 | United Kingdom |
| Blocksquare | https://blocksquare.io/ | 2017 | Slovenia |
| Cocoricos | https://cocoricos.io/ | 2017 | France |
| Liquefy | https://www.liquefy.com/ | 2018 | Hong Kong |
| RealT | https://realt.co/ | 2019 | United States |
| Uprets | https://www.uprets.io/ | 2018 | United States |
| Upvest | https://upvest.co/ | 2017 | Germany |
As the market for real estate tokenization grows, the more service providers are emerging to offer this type of service. In light of the strong performance of real estate as an asset class in countries like the US and the UK, we can expect to see more and more properties being tokenized and sold to investors in the form of blockchain-powered real estate tokens.
The Bottom Line
Real estate tokenization enables you to add real estate exposure to your portfolio without having to put a large downpayment on a property, managing it, and dealing with tenants. Instead, you can gain fractional ownership in a property through the purchase of a digital token that you can hold in a digital asset wallet.
While it’s still early days in the tokenized real estate market, it may soon become standard to add investment exposure to a commercial property in Tokyo, residential housing in New York, and industrial real estate in Germany to your portfolio simply by buying three real estate-backed tokens on a digital asset exchange.
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- How to Build a Blockchain Portfolio as an Equity Investor (With Examples)
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