Commercial real estate business in Japan is undergoing a radical revolutionization as tech companies come up with new innovative ways to make the industry more efficient and tech survey. These tech companies in collaboration with the real estate developers have devised ways of tokenizing real estates using security tokens.
Several companies in Japan among them Securitize, LIFULL, and Lead Real Estate, have announced the creation of real estate investment platforms that will allow the use of digital securities better known as security tokens.
In partnership with LIFULL, Securitize, which is a tokenization firm aims to promote real estate crowdfunding through blockchain technology and it is being sponsored by Nomura, MUFG and Sony Financial Ventures.
LIFULL, which is listed on the Tokyo Stock Exchange, provides real estate information services in Japan and it has 14 subsidiaries. LIFULL is the one that started the development of the real estate crowdfunding platform in partnership with BUIDL, which was later acquired by Securitize. In their trial version, they were able to reduce the costs of operation, improve the efficiency of divided payments and automate the distribution of the security tokens.
To their advantage, Securitize developed a tokenized securities compliance platform that makes it possible for the security tokens to be traded on secondary marketplaces.
Lead Real Estate, on the other hand, is already using blockchain with the help of Securitize to fund the construction of hotels and condominiums ahead of the Olympics 2020, which will be held in 2020.
What is Real estate tokenization?
Commercial real estate business is recognized to be among the most profitable businesses in the world. However, the traditional business model employed in real estate limits many investors from investing in the business since it requires a substantial amount of capital even though it is a viable investment option.
Thanks to blockchain technology through asset tokenization, the commercial real estate industry can now be tokenized.
Real estate tokenization refers to the practice of using tokens to represent real estate assets. The tokens can then be sold out or offered at a price to investors. By owning the real estate tokens, the investors respectively own a share of the real estate project and they are entitled to a share of the rental yield accordingly or profits originating from the sale of the assets.
Advantages of real estate tokenization
Blockchain is known to be an incontrovertible distributed ledger, whereby the data/information stored/recorded cannot be altered unless the whole network is brought down. As a result, it brings transparency, enhanced security, reduced costs of processes, traceability, and storage of immutable documents.
Of utmost importance to the real estate market is the ability of blockchain to allow the execution of transactions without the need for an intermediary. The transactions are only between the involved parties and they are stored in a ledger that holds the history of the transaction, the property involved or the asset involved and the title. Therefore, real estate tokenization eliminates the need for lawyers, brokers, and agents.
Tokenization also offers investors the ability to transact using digital currencies like Bitcoin and the like. This, in addition, is cheaper since the buyers bypass the fees that banks could have included.
Furthermore, the use of Escrow and smart contracts makes it easier and efficient to transfer title deeds upon payments.
Most importantly, real estate tokenization makes it easy for the common man to own a share of a real estate through crowd ownership. A person can invest a small amount of money by purchasing the minimum required amount of security tokens in real estate to become a shareholder of real estate. Also, the security tokens are more liquid and owners can trade them thus fostering growth-financing.
Below is a case study of a process done using blockchain technology without the use of middlemen or the need for an agent.