Tokenization of Real Estate Assets Using Blockchain

Tokenization of Real Estate Assets Using Blockchain

Shashank Joshi, Arhan Choudhury
Copyright: © 2022 |Pages: 12
DOI: 10.4018/IJIIT.309588
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Blockchain technology is one of the key technologies that have revolutionized various facets of society, such as the banking, healthcare, and other critical ecosystems. One area that can harness the usage of blockchain is the real estate sector. The most lucrative long-term investment is real estate, followed by gold, equities, mutual funds, and savings accounts. Nevertheless, it has administrative overheads such as lack of transparency, fraud, several intermediaries, title issues, paperwork, an increasing number of arbitrations, and the lack of liquidity. This paper proposes a framework that uses blockchain as an underlying technology. With the aid of blockchain and the suite of tools, it supports many of these problems that can be alleviated in the real estate investment ecosystem. These include smart contracts, immutable record management, tokenization, record tracking, and time-stamped storage. Tokenization of real estate lowers the entry barrier by fixing liquidity and interoperability and improving the interaction between various stakeholders.
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Real estate is a one-of-a-kind and intricate asset type. In terms of asset base and transactional activity, the commercial real estate industry is an important global economic segment. Despite the size of the real estate investment sector, it has been dominated by a small group of corporate entities capable of making substantial, non-liquid investments. Unlike other asset classes, real estate has significant transaction costs, land-use rules, and other entry hurdles. These qualities of real estate have an impact on the market’s overall efficiency. While there have been advancements in the flow of information and transactions among the various stakeholders, there are still many loopholes in the real estate ecosystem (Thota et al., 2019). Blockchain technology can address these significant loopholes in the real estate ecosystem and helps to digitize and increase the overall efficiency of the ecosystem. Blockchain is an immutable distributed ledger that keeps a record of all transactions and provenance of assets present in the blockchain network in the form of a block and a cryptographic code is used to link each block together in an orderly manner (Joshi, 2021). Furthermore, the desired result is achieved with the help of blockchain-based tokenization, which is a process based on blockchain technology that enables converting tangible and non-physical assets into blockchain tokens.

Real estate tokenization is a burgeoning industry, with an increasing number of people opting to go digital and have debt or equity tokenized. This process eliminates the centralized system that has existed in the past. The blockchain architecture is a preferable choice since it prevents unauthorized access and has other benefits such as immutability, better availability, and distributed nature. This technology transforms asset management in the form of transactions that are simple and automated in nature. Because real estate is typically an illiquid sector, and traditional techniques have lack of transparency, expensive processing fees, many intermediaries, and do not allow for fractional ownership; thus blockchain-based tokenization is the perfect solution for this ecosystem. Tokenization is the process of mapping and separating an asset into various tokens, each of which represents a certain portion of the value. The blockchain real estate token represents shares when one tokenizes a property i.e., a real estate asset. These shares can be used for a variety of purposes, including an equity interest, asset ownership, and dividend rights.

This article will examine how blockchain will transform the real estate sector by making transactions considerably faster, more secure, and transparent, as well as making investments safer and lowering transaction costs using blockchain as a framework for real estate asset tokenization, making it liquid, secure, and efficient. Extend the strategy to include an automated solution for token transfers and earnings distribution to investors.

The remainder of this paper is organized as follows. The next part presents some background or preliminaries for this work. Next, related work is presented in the same section. The paper then describes the existing real estate ecosystem and its flaws. This is followed by the proposed blockchain-based tokenization solution for the real estate ecosystem. The section after that discusses the impact of the proposed solution on the real estate ecosystem. Finally, the last section concludes this paper and indicates some future work.

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