In Italy the 'brick' represents par excellence the concept of security both in lifestyle and in the way of investing. This is also confirmed by Istat data, according to which 80% of Italians live in a house they own. It is therefore understandable that the real estate sector represents an always interesting investment opportunity.
Counterbalancing this general interest in the sector are the barriers to entry represented by the high capital intensity required to invest in real estate projects. As is already the case in other sectors, alternative finance technologies are coming to the rescue by opening up investment to small savers.
One operation that is being seen more and more frequently and is attracting a lot of interest is real estate tokenization.
What is real estate tokenization?
This term refers to the process of creating virtual tokens representing the ownership of real estate assets. It is similar to the creation of digital assets - such as non-fungible tokens (NFT) already widely used in the art world - with the difference that a real estate token is linked to the value of a physical real estate asset.
Tokens, created on the blockchain, can be used to raise capital for investment development, allowing many investors and developers to participate in the market. Real estate tokenization, therefore, is a way through which a company can raise capital using 'crowdsale', a system very similar to crowdfunding but with tokens available on the blockchain.
The role of tokens in this case is equivalent to that of shares, with the difference, however, that there is no need to use costly intermediaries. tokens can also be used as a loan, as a share in a company, or as outright ownership of a specific asset.
In the context of real estate tokenization, a token can represent the right to share in the profits made from the use of an asset, a stake in a legal entity that owns tokenized real estate, an interest in a tokenized debt instrument or the ownership of a real estate unit.
Tokenisation of real estate and blockchain
We have seen many times how blockchain is now penetrating many aspects of our daily lives. Real estate management is becoming one of them.
Looking at today's world of blockchain technology, a token is a type of cryptocurrency that represents an asset. Interestingly, these tokens can be used for various purposes, including storing value, purchasing or investing. Any data (be it a document, a photo, a video or simply a written text) recorded on this innovative technology will remain imprinted forever, without the possibility of someone tampering with it in any way.
In real estate, tokens created on the blockchain can replace traditional paper documentation. Investors can use virtual tokens to conduct their transactions in a secure and legally binding process.
How tokens work in real estate
Two types of utility token offering are currently predominant in real estate:
· The first type allows one to become a co-owner of a part of the asset;
· The second is a debt asset that digitises the rent collected for a property and automates the collection and exchange process.
With the first type of utility tokens, it is possible, for example, to subdivide a property and assign a token to each portion. The utility tokens are then issued to the buyer as correspondents of a section of the property itself. For example, one token may be equivalent to one square metre of a shop. Investors buy the utility token and become the owner of a section of that premises and will receive a share of the profits from the future rental of the property.
With the second type, on the other hand, it is possible to digitise and transfer transactions related to the rental of a property onto the blockchain, automating the collection and exchange process, which in addition becomes immutable and transparent.
At a time of uncertainty and volatility for cryptocurrencies, real estate tokens allow investors to switch from highly speculative cryptocurrencies without collateral to assets backed by real assets. Functioning secondary markets for real estate tokens are increasingly increasing in size. Adoption of this form of investment will continue to grow, which will help the real estate market to continue to thrive.