Neither mortgage loans nor crowdfunding, this is the new way to invest in real estate
The real estate market, despite being considered one of the most traditional when it comes to investing, is very dynamic and constantly evolving, incorporating new technological tools that transform the way in which investors and developers can generate new businesses.
The almost zero access to real estate loans in Argentina was reconfiguring the investment market in this area. In this sense, crowdfunding was a boom that took hold in the mid-2000s as it gave medium-sized investors the opportunity to finance larger projects – previously inaccessible to them – generating profitability in dollars.
However, today technology presents an evolution of this mechanism based on blockchain technology. Thus, the tokenization of real estate came to further democratize access to this type of market and provide security to investors.
According to a report by Citi Group , one of the largest financial institutions in the world, it is estimated that by 2030 the global tokenized real estate market will reach 1.5 trillion dollars . Furthermore, this study indicates that the tokenization of assets (such as real estate) has the potential to grow up to 80 times in private markets.
In this sense, Álvaro Castro Burgueño, co-founder & Chief Portfolio Officer of Rext , a company specialized in real estate tokenization and assets of the real economy, explains: “Tokenization has the potential to redefine the landscape of the real estate market in the next 7 years. Real estate tokens precisely allow us to democratize access so that smaller investors can also be part of it, in addition to providing a higher level of transparency and efficiency. Widespread adoption of tokenization can usher the real estate market into an era of innovation and inclusive growth.”
Tokenization refers to the process of converting physical assets, in this case real estate, into digital tokens within the blockchain.
In this sense, the token represents a fraction of the asset that can be bought, sold or exchanged through specific platforms, in a completely digital way.
“This is a new format for financing real estate projects and is positioned as an interesting alternative for both small investors and developers or construction companies. Tokenization allows assets to be divided into small fractions, making investing affordable for a broader group of people. This can simplify and streamline investment processes, adding an immutable record of all transactions, which provides transparency and trust,” explains Leo Elduayen, CEO and co-founder of Koibanx , a leading company in tokenization for financial entities using blockchain technology.
This provides great dynamism since it allows people from all over the world to invest. This facility made it possible, for example, for small investors in Argentina to become owners of a portion of the Sorrento Vilas hotel – located in the coveted city of Miami – a project that Rext is marketing through the tokenization of its expansion and that allows it to be owner of a token from USD 1000.
In this sense, tokenization would be version 2.0 of crowdfunding, bringing real estate investments into a new era of global accessibility, improved liquidity, transparency and diversification.
3 benefits and differences of tokenization vs. crowdfunding and traditional investments in real estate:
1 Transparency and security: Tokenization uses blockchain technology, which ensures transparent, secure and traceable transactions. On the other hand, crowdfunding does not use blockchain so its transactions do not have the same level of security and transparency, since it depends on how much the investment platform decides to show its investors.
2- Agility: the simplicity and agility offered by tokenization through technology allows you to invest in minutes and obtain the signed contract (through a smart contract) that certifies your participation in the investment. In addition, this process allows you to easily incorporate a large number of investors, while in crowdfunding doing so can be very cumbersome and complex since it depends on traditional processes.
3- Greater Liquidity: Unlike traditional real estate investments, where investors often must commit their capital for years, real estate tokens offer greater liquidity. Investors can buy and sell those tokens on secondary markets, allowing them to exit an investment whenever they want, thus providing unprecedented flexibility in the world of real estate.
In this way, tokenization adds value to both new investors entering the real estate market and traditional investors who are already investing, by allowing them to diversify in a simple way and in smaller amounts. In addition, it opens the opportunity for those who invest in crypto projects to use their cryptocurrencies in real estate and thus generate stable returns.