The combination of blockchain and real estate shows a clear trend from the illiquid to the digital and liquid real estate investment. A few years ago it was inconceivable to own fragments of a property and trade them on a daily basis without high transaction costs. However, tokenization makes this possible.
Tokenization – A complex, but future-oriented technology
By means of tokenization based on the blockchain technology, real estate can be fragmented and then represented by digital tokens. The individual "tokens" represent the underlying property on asset level with all its rights and obligations. Contractual details are defined in so-called "smart contracts". If a pre-defined contract condition is fulfilled, the algorithm stored in the digital contract triggers the events specified in the code. For example, a transaction or a transfer in the land register can be carried out without any human intervention. After appropriate validation of the action, another block is generated automatically, which is attached to the existing blockchain.
The importance of tokenization in the real estate industry
The tokenization of real estate assets can play a significant role in the real estate industry. The notary visit, the considerable transaction costs or the land transfer tax become technically obsolete through the use of tokenization. The result is an increase in efficiency through corresponding financial and time savings. In short, "tokens" are positioned on the same level as conventional securities. They benefit from the above-mentioned potential increases. However, due to the lack of technology those potential increases will remain unable for classical securities. "Tokens" do not only make the replacement of conventional securities by blockchain technology possible. Also, they can convert any tangible assets into "tokens" and make them accessible to all investor groups. Tangible assets include not only real estate, but also works of art or ships, as well as intangible goods, such as licenses. Table 1 summarizes the key benefits of tokenization in the real estate industry.