Real Estate Fractionization – Here's What You Should Know

The advent of blockchain technology has given rise to a number of movements aimed at disrupting the status quo. 

Web 3, dubbed the New Internet, and play-to-earn (P2E) games are just two of these, and they alone have commanded billions of dollars, even though many remain uncertain about what form they will actually take. 

Real estate fractionization is another one of blockchain’s nascent use cases. Like others, real estate fractionization is married not just to technology but to an overarching ideal that siphons power away from central entities and spreads it among ordinary people. 

Paradoxically, companies like Coinbase Global Inc. COIN and Marathon Digital Holdings Inc. MARA, which are technically central entities, represent the face of blockchain in the stock market. Others have operated in a more clandestine fashion while also propagating nontraditional financial instruments into the mainstream.

Templum Inc. could be considered one of these. As a market provider for nontraditional investments, Templum states that it provides investors access to the next generation of capital markets infrastructure for alternatives and private securities. Now, it envisions real estate fractionization as the next alternative investment hub. 

Benefits Of Real Estate Fractionization?

The tokenization of real estate reportedly solves several problems for individual investors. 

One of these is the illiquid nature of real estate investing. In the normal course of a real estate transaction, time-consuming bureaucratic needs significantly slow down the exchange process, particularly in legal settings. Via tokenization, executing a transaction can be as easy as buying and selling cryptocurrencies online, eliminating the need for a middleman. 

Additionally, because tokens are stored on a secure blockchain network, they provide their owners with undeniable proof of ownership over their real estate assets. Many legal issues that arise from titles and deeds might be put to rest because of this unique characteristic. 

The benefits of blockchain’s distributed ledger system extends beyond proof of ownership; it also greatly improves transparency and market security because each exchange of ownership must be checked and approved by other members of the network. Investors will know exactly which wallet owns which real estate asset, and they can carefully track its ownership, too. 

A final — and important — benefit of real estate tokenization is the ease with which investors can now find a property. Through tokenization, the real estate process transfers onto the digital web. Just like an investor would search for Bitcoin BTC/USD or Ethereum ETH/USD online, they would now be able to do so for real estate assets on a digital marketplace. 

Fractionalization – An Added Benefit

An additional feature of tokens is that they can be split into tinier pieces. 

This process is called fractionalization. Fractionalization in real estate tokens allows investors to acquire portions of property at very affordable prices with few legal requirements. Once more, real estate tokenization makes the barriers to entry far less crippling to the layperson. 

Of course, the downside of fractional ownership is that investors do not attain the full benefits of ownership. For example, if the property is being rented, the revenue could be split based on each member’s share of ownership in the property.

Each real estate tokenization project will have its own rules on how revenue may be generated, but it’s unlikely that any person would take the bulk of the revenue share without owning a significant amount of the token supply. 

Benefits To Platforms?

Real estate tokenization is still up and coming, and a few brokers have integrated it into their repertoire of services. 

According to a report by Prophecy Market Insights, the real estate tokenization market is forecast to grow to $1.2 trillion in 2024 and $3.9 trillion by 2029. Real estate tokenization efforts are rapidly sweeping across the globe. 

Dubai, for example, recently launched a real estate tokenization project to bring $5 billion in liquidity by 2024, while the United Kingdom and Manhattan, New York, have both tested their own real estate tokenization plays. 

If real estate tokenization becomes as mainstream as its advocates suggest, the platforms that provide a marketplace for it may have a significant competitive advantage over others. 

For Templum, providing marketplaces for nontraditional investments is a specialty, and real estate tokenization might fit right in. 

Click here to learn more about Templum’s services. 

Photo by Sean Pollock on Unsplash

This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investing advice.