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Tokenization: a new paradigm in real estate investment

Nov 10, 2023

Token City Real Estate tokenization

The global real estate market - a consolidated and diverse sector - is currently valued at a staggering €300 trillion, with a fascinating picture of market shares: commercial real estate accounts for €31 trillion, residential for an impressive €244 trillion and agricultural properties are valued at €34 trillion. An emerging trend in this market is the concept of tokenization, a process that, even at a modest rate of 0.5%, has the potential to become an industry measured in trillions of euros. According to Deloitte, by 2030, real estate tokenization is poised to reach the €1 trillion milestone, which is a monumental shift in the way we invest in real estate.

Despite the attractiveness of real estate as a profitable investment - endorsed by over 80% of the population - only 3% of the world's population invests in real estate. This disparity raises questions and points to problems inherent in the current real estate investment framework. The industry's double dilemma lies in its significant barriers to entry: lack of liquidity and the need for substantial upfront capital.

The real estate sector's liquidity, or lack thereof, is one of the main problems. The average real estate transaction takes between 30 and 45 days to close, often taking months. This type of delay is not due solely to location or property type, but is the result of a complex, multi-layered transaction process involving numerous parties and rigorous legal protocols. A cumbersome process that stands in contrast to the relative simplicity of trading shares in the stock market.

On the other hand, the financial demands of real estate investment are not encouraging. With down payments in Europe and the U.S. ranging from 15% to 30%, a typical down payment for a 300,000 euro property is around 75,000 euros, a considerable sum that highlights the difficulty of access to real estate investment for a wider audience.

Real estate tokenization

In examining possible solutions, we find that real estate investment funds, while useful, fall short. The average management fee is around 10%, and the high minimum investment thresholds, coupled with the liquidity problems of unlisted funds, limit their attractiveness. Similarly, special purpose vehicles (SPVs) offer certain advantages, but do not sufficiently solve the accessibility challenges for small and micro-investors, as they share many of the same limitations as real estate investment funds.

The future, however, looks promising. The integration of tokenization into real estate investing heralds a new era of inclusion and efficiency. As we move toward 2030, we foresee a transformative shift in real estate investing, democratizing access and creating fluidity in a market historically characterized by rigidity.

The impending wave of tokenization is set to redefine the investment landscape, presenting a solution that not only mitigates current problems, but also pushes the industry to make real estate investing as simple and accessible as buying stocks. That's why at Token City we help companies to tokenize their real estate projects, digitizing their assets, making them more transferable and simplifying their processes.

Entra en la nueva economía tokenizada

Enter the new tokenized economy

Token City is the ultimate bridge to the tokenized economy (tEconomy), in which tokenized companies (tEnterprises) create their cryptoasset markets (tMarkets), open to global investors (tCitizens).

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