29/02/2020 Computer - IT - Webs
Why is Real estate Tokenization the next big thing?
Real estate from time and time again to this day are one of the major sources of wealth for many entities be it individuals or corporations, It is globally, one of the largest owned asset class. By investing in real estate properties, People have made a fortune or have lost a lot of their money by making a few bad decisions. Globally, the real estate market is $217tn in size, yet it remains as one of the most unregulated, opaque.
Though various attempts have been made to regulate, manage and liquidate, this area, every individual or institution that owns real estate would have faced nontransparent transaction costs, differential pricing and taxes, illegal enchroachment, misinformation about the property, property rights opaqueness, and a set of troubles that are a subset of these major issues.
A tokenized real estate is a security token that would pass the Howey's test as these are backed by an asset. To protect the investments of the stakeholders, an escrow would be set up and linked to the smart contract with a set of milestones, everytime a milestone is reached, the payment is released. This way fraudulent builders don't enter the Asset tokenization platform. Also, the platform that tokenizes the property and the exchange that lists it would require legal compliance paperwork before the token is listed for sale.
How does Real estate tokenization work?
To make the property tradeable it needs to be tokenized. After all the legal compliance check is completed, the real estate tokenization is carried out. Post which that it has to be listed on a reputed asset trading exchange.
Compliance and undertaking
Before creating the tokens, a thorough compliance check on whether the property exists (if it is partially or fully built) / the necessary permits have been received to start the construction. A thorough background check about the builder is also carried out. Once the check is completed, the next step follows.
The construction company with the help of a law agency needs to have all the paper-work related to the tokenization ready before the real estate tokenization process.
Real Estate Tokenization
To tokenize the real estate, a real estate tokenization platform or a real estate token Development Company is used, where all the necessary formalities are filled out and then the tokens are created with the smart contract and transferred to the construction company that wants their real estate to be tokenized.
Once the tokens are created, a reputed escrow agency is set up to handle the future transactions, track the milestones to release the payments in a timely manner to safeguard the investments of the investors and to ensure a smooth payment process between the builder and the investors.
Listing on a Tokenized Real estate Exchange
Before listing the real estate tokens, the exchange carries out a check for all the necessary compliance and the details about the escrow. Once the exchange approves the real estate token, it is listed for trading. Finally, the trading begins.
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