If you are looking for a proven and cost-effective way to learn how to tokenize property to seamlessly trade it online, Check out SAG IPL’s real estate tokenization services.
Real estate is known to be one of the immovable and illiquid assets. This is because the property is rather difficult to quickly liquidate for its fair market value compared to various other types of assets such as stocks and bonds.
For example, if you need quick cash for a medical emergency, you should probably not rely on property. Even if you manage to sell your house or other property quickly, you’ll not likely get its fair market value.
The illiquid nature of property also makes it somewhat inaccessible or too expensive for most investors and buyers.
Why is real estate considered an illiquid asset?
Real estate is a big asset that not everyone can buy on short notice. Arranging so much cash or loan takes time. Moreover, there are fewer buyers for this kind of asset.
Another problem with property investments is that you generally cannot buy a fraction of a property. You have to buy the complete property, which is not budget-friendly for most people. All this makes the property an illiquid asset.
But, that’s about to change.
Through blockchain tokenization, even an illiquid asset like property can be made liquid for easy and quick online trading. Property tokenization provides an easier, more accessible and efficient way for individuals to invest in property assets like townhouses, commercial properties, condos, vacation houses, and more at a very low initial cost.
Whether you’re looking to tokenize your property or are just curious to know about it, we discuss here the detailed process of how to tokenize property using blockchain technology.
What is Property Tokenization?
Property Tokenization essentially refers to the process of digitizing a property asset like a house using blockchain technology to allow it to be traded, bought and sold online without geographical restrictions. It’s somewhat like the dematerialization of shares/stocks but on a globally accessible blockchain network.
The process of property tokenization involves creating a blockchain smart contract for the said asset that defines the rules of tokenization, distribution, ownership, transfer, and management of tokens.
The real estate asset or property is (virtually) divided into several equal parts, each represented by a blockchain entity called a token. Each property token is specific to a particular property. Individuals looking to invest in a tokenized property can buy tokens to buy fractional ownership of that property.
Benefits of property tokenization:
- Higher liquidity – tokenized property is easier to sell fast
- Increased exposure – property tokens can be bought and traded online across the globe
- Low investment need – can buy as low as one token (the smallest fraction of a property)
- No middleman – enables property transactions directly between buyers and sellers without the need for brokers and agents
- Reduced transaction cost – zero middleman fees and other charges when transferring ownership
- Reduced dependency on the system – no need to seek permission from third parties like the government to sell or trade your own property
- Fast & more efficient transaction
- Increased transparency & security
Tokenization Process: How to Tokenize Property
Tokenizing your property is one of the best things you can do to increase liquidity and exposure and make your illiquid assets ready to sell and trade online.
Property tokens are the best way for small investors and individuals to invest in property with a low minimum investment. Here’s how you can turn your property into tokens on a blockchain:
Step 1: Property Selection & Analysis
Even though all types of properties are ideal for tokenization, you must still choose a suitable property based on location, demand and growth probability to ensure a good value for tokens. Then, determine the estimated fair value of the property based on the ongoing rate in the area. This is crucial for determining the number and value of tokens.
It is easy to determine the right value of a property through some research. You can ask around or consult authorities to determine the fair value based on the size and type of your property.
Then, you need to determine the number of tokens you want for your property. It can be based either on the property size or its value. For instance, if you own a 1000 sq. ft. apartment, you can choose to divide it into 1000 tokens with equal value. Or, if your property value is around $10,000, you can choose to turn it into 10,000 tokens, each worth $1.
If your property size is 1000 sq. ft. and its value is $10,000, then dividing it into 1000 tokens will result in each token being worth $10. That means a person looking to invest in your property must buy at least one token with a $10 minimum investment.
Step 2: Legal Compliance
Since the property is a physical asset, you’ll need to go through official channels to ensure compliance with the law when looking to tokenize your property. They may require you to set up a special purpose vehicle (SPV) in order to accept investments from multiple people in a single asset.
An SPV might enable you to transfer ownership of real estate to multiple buyers by issuing tokens. Consult with or hire a legal expert to ensure compliance with the legal process.
When going through legal compliance, also conduct a thorough background in the property’s history to ensure it’s free from disputes and any liens or mortgages and is suitable for tokenization.
Step 3: Smart Contract & Token Development
At this stage, you’ll need to hire a token development company like SAG IPL to create a smart contract on a compatible blockchain platform.
A smart contract is a digital contract or agreement that operates on the blockchain network. You can create a smart contract for practically any type of transaction, including property deals. Your real estate smart contract will define the rules pertaining to the ownership, transfer, valuation, and management of your tokens.
Tokens representing property are called security tokens. When building your smart contract, you’ll also need to define the total number of tokens you want for your property and the estimated value of each token.
The smart contract can be programmed to auto-execute transactions upon meeting the underlying rules. For instance, you can automate the transfer of ownership of tokens upon receiving the confirmation of payment to your wallet/account.
Step 4: Launching and Selling Property Tokens
Now that your property tokens have been created, you can start selling them to interested buyers. But, how do you find buyers for property tokens?
The answer is: security token offering or STO
An STO is a type of token sale where you sell security tokens to potential investors and get their investment in return. Plan and organize an STO for your property token to sell the tokens to potential investors along with ownership in the underlying property.
You can consider promoting your STO by hiring STO marketing services from a reputable company like SAG IPL. This involves promoting your token, property and benefits to attract investors who are looking to buy or invest in tokenized property.
As a part of your security token offering, you must consider enabling Know Your Customer (KYC) and Anti-Money Laundering (AML) checks for the STO participants to ensure that your token sale is compliant with regulatory requirements.
You’ll also need to devise a mechanism to distribute tokens to the buyers. You can deposit tokens to buyers’ wallets immediately after receiving payments or choose to wait for the sale to end before starting token distribution.
Step 5: Trading Property Tokens
One of the advantages of tokenized property is that it can be traded on a cryptocurrency exchange just like various other crypto tokens.
After a successful STO and token launch, you may want to consider listing your property token on one or more popular crypto exchanges to enable investors to sell or trade their tokens for a profit and allow other people to buy tokens on the exchange.
Step 6: Post-STO Management of Property
After a successful STO sale, a tokenized property is collectively owned by all the investors who have purchased or now hold its token, in accordance with the percentage of total tokens they own.
They will be liable to bear maintenance risks and expenses and eligible to receive their share of rental income (for rental properties) based on their ownership fraction.
A separate smart contract can be created to automate the collection, calculation and distribution of rental income or other profits generated by the real estate between the token holders.
Property Tokenization Using Blockchain Technology by SAG IPL
Tokenizing property has many advantages. It is one of the best ways to buy and sell property online with easy liquidity and low investment size. However, it’s easier said than done.
From being compliant with legal and regulatory norms to creating a high-quality & secure smart contract based on your requirements, it can be quite complex to create and launch your own property token, which is why you might need to hire a professional tokenization expert from SAG IPL.
Tokenization to Change the Way People Invest in Property
Tokenization of Commercial Property
We can help turn your commercial property like an office, hotel, retail store, or land into highly liquid and tradable property tokens that you can sell or trade online on any compatible exchange. Our property tokenization platform developers can create fully audited and legally compliant tokenized property to help you raise funds from potential investors.
Tokenization of Residential Property
You can use our residential property tokenization services to convert your residential property, a home, penthouse, or rental property into a tokenized asset to seamlessly sell or trade it online on the blockchain with people all around the world. Boost liquidity and earn huge profits by tokenizing your house or other property with SAG IPL.
Tokenizing your property needs planning and research. From selecting the right type of property to determining its fair market fair and choosing the right type of blockchain, you need expert help. Our blockchain experts can help you in preparing the best strategy for tokenizing your property.
Security Token Development
A security token can be used to represent a property on the blockchain. If you are looking to tokenize your property, you can hire our expert blockchain developers and consultants to help you create the best, regulated security token based on your specific requirements and goals, whether it’s to raise funds or increase liquidity.
When developing a property token, we can also help you with blockchain development and customization. If you need a customized blockchain network for your tokenization, we have the best blockchain developers to help you build one.
Smart Contract Development
Get the best, all-inclusive smart contract for your property tokenization project/platform with custom code to automatically execute the rules for token governance, ownership and transfer to ensure smooth property transactions with high security and transparency.
We can help you connect with proficient legal and financial advisors who can manage any and all legal issues in developing your tokenization platform, smart contract and token, ensuring compliance with local laws and regulations for hassle-free trading.
Conclusion – Tokenize Your Property With SAG IPL
While tokenization is definitely one of the best ways to boost the liquidity and profitability of your property, it’s not as easy as it may sound.
There is a lot of technicality and legality involved in the property tokenization process, which is why you must know how to tokenize property using blockchain technology to help ensure a smooth tokenization process for whatever property you want to sell or trade online.
SAG IPL provides comprehensive & affordable property tokenization solutions, from smart contract creation to security token development, legal compliance & registration, STO launch, STO marketing, and post-STO services. Contact us to book a free consultation today.