Nearly the entirety of global commerce involves real estate in one way or another. Besides creating spaces for people to live in, real estate developers provide production facilities and office spaces for companies and traders, thus being involved in the distribution of almost all goods and services. It is, therefore, no wonder that an estimated three-quarter of the global wealth is locked up in real estate assets.
The use of the word “locked” in this context is deliberate, as it describes what is possibly the single biggest problem in real estate right now. Let us elaborate on this in more detail.
More Liquidity to the Real Estate Markets
Due to their very nature, immovables are highly illiquid assets. Real estate developers are typically committed to their investment for multiple years, or even decades. Getting rid of assets – for whatever reason – requires the seller to find someone who is willing to buy the property for an acceptable price. Moreover, asset transfers typically require multiple middlemen, such as a certifying notary.
This illiquid nature of the real estate market also creates high entry barriers for potential investors. Not many investors are willing to take the risks associated with committing themselves for such a long time span. For this reason, the introduction of Real Estate Investment Trusts was an attempt to bring more liquidity into the market.
These funds, abbreviated REITs, are securities that reward investors with recurring dividends. Some of these REITs are traded on exchanges, allowing asset holders to easily sell their shares. However, investment trusts are not the end-all solution to the liquidity problem. First of all, REITs are a relatively young investment opportunity in most countries.
While they have been around in the US since 1960, most countries have yet to introduce these securities to their financial markets. Currently, there are only about 20 countries that have passed regulation concerning REITs. Most of them have taken this step after the turn of the millennium.
The real estate market is rife with fraudulent behavior, which has also taken its toll on REIT investors. Although exchange-traded REITs are highly regulated, there have been common occurrences of scams, especially in those funds that are not publicly traded. This adds another entry barrier, as investors need to do their own due diligence and most likely should consult a legal practitioner before investing in real estate funds. At best, REITs can, therefore, be considered diversification tools for middle-class investors. Their introduction has not really made an impact on the notion that real estate is only attractive to affluent investors.
Tokenized Real Estate – REITs with a Twist
Since the inception of public blockchains, the tokenization of real-world assets has been gaining ground. Blockchains are distributed ledgers that can be used to keep track of asset ownership. This has been extensively tested since the introduction of Bitcoin as the first cryptocurrency in the year 2009.
Besides pure cryptocurrencies, blockchains can manage a myriad of different assets. This includes tokens that represent the ownership of assets in the physical realm, such as real estate. Thus, properties can be fractionally owned by a large number of people. Additionally, fractional ownership tokens can easily be listed on either centralized or decentralized exchanges, which makes tokenized assets highly liquid.
Moreover, programmable smart contracts can implement an automated payment logic, which makes many different business models possible. This includes the ability to automatically disseminate profits, for example through the means of dividend payments. Also, various models belonging to the realm of shared economies are viable.
For example, businesses might decide to collectively construct an office building, where each gets a share of the token supply, based on how much they have contributed to the fundraising. If a company holds a sufficient amount of tokens, they get the right to immediately move into an office space by locking the tokens up in a smart contract. If they move out at a later date, their tokens get unlocked and the company can sell their tokens on the exchange, either to another company that wants to move in or to third-party investors.
Since tokenized assets are transparently stored and managed on a public blockchain, it is at all points clear which parties have ownership over which exact amount of tokens. Over an exchange, the tokens can immediately be transferred to others without the need for a centralized middleman.
Asset Tokenization on the Realio Platform
There are various tokenization platforms that facilitate the issuance of fractional ownership tokens, such as digital REITs. One of the youngest emerging platforms in this market is Realio.
This provides multiple vital services to token issuers, such as providing the smart contracts that govern the token behavior on the Realio blockchain, such as the distribution of profits. One of the most important services of Realio is that they provide compliance to all major securities regulation in global jurisdictions. This of course includes SEC regulations, as well as the various exemptions for security issuance.
Some of these regulations restrict the sale of securities only to accredited investors. Realio aids in this process by conducting AML/KYC checks and by verifying which investors are accredited. Both accredited and non-accredited investors can then buy tokenized assets on the decentralized RealioX exchange, which automatically lists all tokens created on the Realio platform.
At the current state, decentralized crypto exchanges have the problem that they are not used very widely, in comparison to centralized exchanges. Hence, they have comparably little liquidity. RealioX solves this problem by introducing a taker fee of 1% on all trades, which is paid out to the maker of a trade. This encourages adding liquidity to the exchange by market makers.
As another contrast to other decentralized exchanges, RealioX tracks the identity of its users, making sure that investors can only buy tokens if they are legally eligible to do so. This provides an intuitive and user-friendly interface to invest in real estate with regulatory compliance for both investors and token issuers.
Asset tokenization can solve many of the most pressing issues that are present in the real estate market right now. By introducing fractional ownership, real estate developers can move into a currently untapped pool of investors, namely small and middle-class investors. Additionally, smart contracts can make more business models, such as shared economies and automatic dividend payments viable.
The issuers of digital, tokenized REITs should make sure to pick a trustworthy platform, which aids them in creating their token and listing it on an exchange. Realio is an excellent choice, as the platform provides a user-friendly interface for token issuers and investors, which automatically disseminates dividend payments and lists all tokens on the RealioX exchange.
RealioX has all the features of a decentralized exchange, but additionally incentivizes market making by distributing all trading fees to the makers. Also, RealioX provides regulatory compliance and makes sure that all investors are KYC-approved and accredited if necessary.