The traditional real estate market, despite its enduring popularity among investors, faces several challenges. The main issues are low liquidity, high transaction costs, and limited market access for small investors.

Blockchain and tokenization are increasingly mentioned as innovations across various industries, and the real estate market is no exception. Real estate tokenization offers developers and realtors many advantages that can radically change their business approach and client interactions.

Basically, the process of real estate tokenization boils down to converting a physical asset into a digital one. A building or a land parcel is divided into multiple parts, with each part sold separately in the form of tokens that represent a stake of ownership. These tokens can be bought, sold, or exchanged on specialized platforms, providing greater flexibility and accessibility for investors.

Let’s take a closer look at how tokenization can solve the major problems of the traditional real estate market and what benefits developers and realtors can gain from it.

Problem: One of the main problems of the traditional real estate market is low liquidity. Selling real estate often takes a long time and requires considerable effort from developers and realtors.

Solution: Tokenization allows real estate to be divided into small shares that can be easily bought and sold in the secondary market. This greatly boosts liquidity, enabling investors to enter and exit investments quickly and seamlessly.

Benefit for developers: Developers can quickly sell stakes in their projects, accelerating revenue generation and reducing financial risk.

Benefit for realtors: More transactions with less time and effort per deal can lead to higher commission income for realtors. Frequent and rapid transactions also enhance the reputation of agencies and build client trust.

Problem: The entry threshold for the traditional real estate market often requires substantial capital investment from investors, limiting the pool of potential buyers.

Solution: Tokenization lowers the entry threshold, allowing small investors to participate in real estate deals by investing relatively small amounts.

Benefit for developers: Developers have access to more sources of financing, which enables them to undertake larger and more ambitious projects.

Benefit for realtors: A broader investor base leads to more deals and more potential clients, which directly affects realtors’ revenues.

Problem: Geography-wise, the traditional real estate market is often limited. Developers and realtors have to find clients within their city, region, or country, as foreign investors frequently encounter legal or regulatory hurdles when trying to invest in properties outside of their home jurisdiction.

Solution: Tokenization enables investors from around the world to participate in the real estate market, which positively impacts the properties themselves by increasing demand and boosting their value.

Benefit for developers: Developers can attract foreign investors, increasing access to capital and allowing for project implementation across different regions.

Benefit for realtors: With tokenization and the attraction of foreign investors, realtors working in local markets can expand their client base and increase transaction volume.

Problem: The process of buying and selling real estate is usually accompanied by significant bureaucratic complexities. Legal checks, paperwork, and intermediary services increase the duration and cost of transactions.

Solution: Blockchain and smart contracts underpinning tokenization can automate and simplify many aspects of real estate transactions. Smart contracts ensure automatic fulfillment of sale terms, rental payments, and income distribution.

Benefit for developers: Developers can sell properties faster and receive revenue more quickly, improving access to capital. Automation reduces labor costs and allows developers to focus on strategic business development.

Benefit for realtors: Simplifying and accelerating transactions enables realtors to process more deals in less time, increasing their overall productivity and revenues.

Problem: Another key problem with traditional real estate transactions is the lack of transparency and security. Document forgery, fraud, and lengthy legal battles are common occurrences in the traditional real estate market.

Solution: Blockchain can provide immutability and transparency of all property-related records. All transactions and changes in ownership rights recorded on the ledger are available for verification at any time. Currently, NFTs can’t replace traditional investment agreements, as no jurisdiction yet has clear rules for registering real estate transactions within DLT systems. Therefore, investors receive not only a token but also a traditional purchase agreement signed by the company that owns the assets. However, the trend of mass tokenization adoption and active innovation development suggests that NFTs will soon carry the same legal weight as traditional legal documents.

Benefit for developers: Transparent and secure transactions enhance developers’ reputation in the market and reduce legal risks and potential dispute resolution costs, making the business more stable.

Benefit for realtors: Transparency and secure transactions increase trust between realtors and their clients, improving the reputation of agencies.

Problem: Traditional real estate transactions involve many costs, such as notary services, legal support, and intermediary commissions. These costs can significantly reduce transaction revenue and make them less attractive to investors.

Solution: Tokenization can substantially reduce these costs by automating processes and eliminating the need for some intermediaries. Using DLT systems provides reliable and transparent record keeping, which reduces the cost associated with verification and proof of ownership.

Benefit for developers: Lower costs increase net sales profits, allowing developers to reinvest in new projects.

Benefit for realtors: Reduced transaction costs make deals more attractive to clients, increasing their volume and, consequently, realtors’ income. Besides, the reduction in costs improves the agencies’ competitiveness in the market.