Updated: Jun 16
Who would have thought back then that technological advances like the World Wide Web would increase trading speed and reduce costs for financial market participants? That's impressive when you look back today. Innovations in financial products and infrastructures, in particular, have given added value to the stock and bond markets to this day. However, the advent of tokenization has opened up new opportunities in the real estate market.
Buying a property requires the physical presence of the buyer and seller to sign the deed and keep a record of the transfer of ownership with a local land registry. By digitizing the entire process of buying or selling real estate, security tokens enable this illiquid asset class to become tradable.
However, the breakthrough is that security tokens make it possible to split real estate or entire real estate portfolios into smaller trading units, each of which is represented by a unique security token stored in a distributed ledger. For example, suppose an apartment is divided into 100 fractions and each of them assigned to a token. In that case, the purchase of a token entitles the token holder to 1% of the ownership of the apartment. By dividing ownership, tokenization lowers barriers so that more investors can trade and more capital can flow into the asset class. In addition, investors can have more control over their allocation and strategy. Diversification across several properties, countries or segments such as commercial or residential is possible with the real estate security token. For the first time, rebalancing strategies based on the return on equity or other key figures are also possible, since investors can easily get in and out of portfolios or individual properties. This ability should increase the efficiency of the real estate market over the next decade.
Tokenized real estate securities can follow both models. They can also be some type of special purpose vehicle (SPV) or a debt instrument. Brickblock in Germany, for example, tokenized the stake in a particular purpose vehicle to sell a property worth around 2 million euros in Wiesbaden, Germany. In contrast, the Liechtenstein crowdlitoken is structured as a subordinated bond (“CRT”) with an initial term of 25 years. When traders want to get in and out of their Crowdlitoken investment, they can sell the purchased token to another prospect on secondary markets.
With the CROWDLITOKEN BOND, Crowdlitoken demonstrated the ability of the blockchain to make illiquid assets more liquid and lower barriers to entry for investments in real estate. Fully digital securities like the CRT combine many advantages that result in the capital markets becoming more accessible to a wider audience.
Global Tokenization Market
In a survey on technology tipping points in 2015, the World Economic Forum estimated that 10 percent of global gross domestic product (GDP) would be stored on blockchain technology by 2027. And the survey estimated that for the first time taxes will be collected from a government via blockchain by 2023.
A study by JLL in 2020 also showed that around 80% of all direct investment is in just 60 cities around the globe, meaning that thousands of urban areas are underserved and receiving only 20% of the capital.
Investor interest in tokenization has increased in recent years. According to the Tokenization Market Report, token market value growth has been multiple times over the past year and is projected to reach $ 4.2 billion by 2027. The Security Token Group published another report. The total market capitalization of Security Token was $ 696.7 million as of April 2021. In January 2020, it was still $ 52.7 million. These numbers show that investors are interested and confident in the token asset markets.
About Calanni Estate Consulting AG (CEC)
Education and investor protection are essential elements of the ecosystem. Therefore, the CEC team is working intensively with PropTech Academy to provide more solutions to increase transparency in the digital real estate industry.
One of our tasks is to provide business consultation and advisory services to blockchain and digital real estate projects at every stage seeking assistance from experienced professionals in technology, entrepreneurship, business operations, and marketing.