Tokenization could have the ability to completely change how the real estate market is operated. Many users will wonder what their main advantages and risks that this digitization of real estate can entail.
To begin with, a priori, the owners can enjoy more flexibility as you don’t have to buy an entire property, with the risks that this entails. The normal thing is to buy or pay the rent of a property in full. However, thanks to tokenization we can combine these two options, since it would be allowed to own 50% of the property and tokenize the remaining 50%.
The tokenized percentage can work as if it were a mortgage, being offered on a secondary market. All this in a decentralized way, that is, without having to resort to a third party such as a financial service provider or a bank.
Possibilities of Tokenization
A) Yes, a retailer would have more opportunities to diversify its portfolio. In addition to this, another advantage is that tokenization could solve possible liquidity problems in the real estate market. Blockchain technology allows tokenized assets to be exchanged constantly, 24/7, which increases working capital.
Another benefit of smart contracts is that these transactions would avoid relying on physical meetings to enter into contracts., which has been a problem during the COVID-19 pandemic. The difficulties derived from this lengthen the procedures and also require a large number of intermediaries, be they lawyers, financial institutions, brokers, etc. also increasing spending in case of disagreements or frictions.
real estate tokenization would help reduce paperwork, and consequently save time. These traditional processes would be eliminated and made obsolete because blockchain is based on the principle peer to peer.
Blockchain technology would also help build trust between the two contracting parties and serve to ensure the security of the process. In this way, it also increases the transparency and automation, since international transfer is allowed of real estate stocks in a matter of seconds.
Risks of Tokenization
On one side, the risks would be intrinsic to any property and depend on several factors. Problems could arise if you can’t rent or if there are defaults. Or that in the future the property in question would lose value. Even so, Eric Sánchez, CEO of Reental.co, points out that Keep in mind that the interest offered may be highly speculative in nature..
This means that are currently high risk and ideally only those who can afford to lose their entire investment would participate. Therefore, Eric warns that investing in placements of this type requires the investor to be able to withstand a high tolerance for risk.
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