In 2021, the global real-estate market was valued at ~$29 trillion dollars, making it one of the largest markets in the world. The vast majority of people around the world are connected to the real-estate market, whether as renters or owners, or as office, retail, or factory workers.
Compared to other assets, real estate is illiquid and inefficient:
- It can take weeks to months to find a counterparty.
- Sales prices fluctuate within a range.
- Real-estate transactions take weeks to close.
- Many service providers are needed to transact.
This process can be streamlined and unlocked through tokenization.
What Is Tokenized Real Estate?
Tokenized real estate is when a real-estate property or its cash flows are represented as a blockchain token (or tokens) to increase liquidity, streamline processes, and enable digital ownership.
In general, the use of blockchain technology for tokenized real estate requires the use of either non-fungible tokens (NFTs) or fungible tokens, depending on the goal and what’s being tokenized. NFTs are useful when a property—or groups of properties—is being considered as a whole (i.e., one or more properties, one token). Fungible tokens are useful for fractionalizing a whole into parts (i.e., one or more properties, 100 tokens).
According to KPMG, “tokenization is ideal for owners of a single asset or a small portfolio of assets, due to the significant reduction of time and cost in offering investors the right to participate in fractional ownership and subsequent secondary trading.”
How Could Tokenized Real Estate Work?
In general, tokenized real estate requires that there is a firm, trust-minimized link between the digital asset (token) and the underlying physical asset (property). Chainlink is a Web3 services platform that supports developers and entrepreneurs aiming to bridge the gap between blockchains and real-world assets (such as real estate) by providing best-in-class connectivity tools.
This section will outline different possibilities across the residential and commercial real estate markets to provide an idea as to how real estate might be tokenized.
Note: All the examples below are largely future-facing, illustrative, and have not been implemented at scale. Specifically, considerations around the verification of home ownership and any related practical issues are not addressed in these examples.
Simple Tokenized Real Estate
The simplest example of tokenized real estate is representing a single real-estate property as an NFT.
An NFT is a unique token that is verifiably different from every other token on a blockchain—making it a good fit for real estate because every property is different.
Features:
- Owning the NFT can be equivalent to owning the property.
- Transferring the NFT can mark a change in property ownership.
- The NFT can hold critical data such as past sales, address, and more.
In this theoretical example, selling a house is as simple as listing it on an NFT marketplace. A buyer can press a few buttons and, if they have the necessary funds, purchase it within minutes stances—a drastic shift from the weeks-long process that real-estate transactions require today.
