How fractional ownership through tokenisation is disrupting the traditional real estate sector

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Lead Writer of Bricktrade, Kirthana Devaser discusses the disruptive nature of fractional ownership through tokenisation in the real estate sector.

Blockchain technology has been among the most talked about disruptive technologies in recent years. With the rapid adoption of blockchain across industries, it’s hard to find an industry that has not been influenced by the technology. 

In fact, blockchain technology has even managed to disrupt the real estate sector. But why is blockchain set to give the real estate sector a significant edge? Simple: Blockchain can facilitate the transformation of the industry through tokenisation and fractional ownership. 

What is fractional ownership? 

Fractional ownership is an investment approach that allows the cost of an asset to be split between individual shareholders. These shareholders share the benefits of the asset such as usage rights, income sharing, priority access, and reduced rates. These benefits received by fractional owners are comparable to those of timeshare owners.

What is real estate tokenisation?

Real estate tokenisation is the creation of tokens on the blockchain which are then assigned to real estate properties that are either under construction or already exist. These tokens represent fractional ownership in real estate. 

Since physical assets back these tokens, the value of the tokens fluctuates based on the performance of the asset. This is similar to traditional real estate investing, however you will have the ease of transfer granted by the utilisation of blockchain technology. 

Real estate tokens can represent different things, from a portion of the deed to equity interest in a legal entity or even ownership of collateralised debt.

What does fractional ownership and tokenisation solve? 

Liquidity 

Real estate is considered one of the most illiquid asset classes that require significant capital commitments and long, expensive transaction processes. Through tokenisation, transactions could be simplified significantly in the industry. Tokenisation will allow ownership to be transferred directly from investor to investor, essentially cutting out the middleman. 

Proof of ownership

Real estate investors face the issue of proving ownership. Similarly, to cryptocurrencies, tokenisation utilises the distributed ledger technology. This means there is a database that is shared and synchronised across multiple channels and is accessible by several people. Every transaction is validated and sent by the network that makes up the marketplace. This technology mitigates issues that may arise from ownership disputes because the network will be able to validate each transaction and prove the rightful owner of the particular asset. 

Market security and transparency 

Like proof of ownership, the utilisation of the distributed ledger system will help improve both transparency and security in the marketspace. Furthermore, blockchain technology allows information to be transparent. Network participants have the right to access holdings and transactions of public addresses through a block explorer used to search the blocks of a blockchain. 

Diversified real estate investment portfolios 

With tokenisation, investors can choose to participate in opportunities across the globe, seamlessly and at a nominal cost. The beauty of tokenisation is the elimination of cross-country barriers. You could live in New York and your property portfolio could consist of stakes in both commercial real estate in Hong Kong and retail real estate in London. In essence, there is no restriction on what jurisdiction you invest in and from what jurisdiction you do it. 

Reduced Costs 

Blockchain technology allows the removal of middlemen, automatically reducing the costs associated with intermediaries. With tokenisation in real estate, there will be no need for neither real estate agents nor lawyers. Simply put, investors can buy and sell real estate without incurring conventional closing costs on property, lowering transaction fees significantly. 

Real estate tokenisation is becoming increasingly popular with plenty of entities sprouting out in the ecosystem to support the development of the sector. For example, Bricktrade is the UK’s first construction financing platform to accept crypto for property investments. Bricktrade has developed a platform which tokenises real estate assets, thus opening the possibility of investment from crypto market participants. 

Developers benefit from deep pools of crypto liquidity whilst investors can benefit from tradeable, liquid solutions to accessing institutional-grade real estate opportunities. 

Through BrickTrade, a property developer can transfer equity of their assets over to Bricktrade, whereby those assets then become tokenised and offered to crypto investors. Through this mutually beneficial arrangement, property developers receive access to much needed funding, and investors receive access to previously inaccessible institutional-grade real estate investment opportunities.

Evidently, tokenisation is set to become a tool that is convenient for developers and safe for real estate investors. Not only will property developers be able to tap into cheaper and quicker sources of funds, but investors will be able to take on new investment opportunities that are expected to yield higher returns. 

 

About Bricktrade 

The Bricktrade platform functions as an end-to-end solution for property funding, development, investment and profit generation.

Their cutting-edge real estate crowdfunding platform – teamed with their network of partners and decades of combined experience – helps to streamline the process of investing into property and raising funds for new developments.