How does real estate tokenization work?

May 11, 2023

Real estate tokenization starts with the most basic step, which is verifying the real estate using various data sources about the assets. It can range from acquiring ownership documents, utility bills, tax bills, title deed insurance, neighborhood checks, and so on. This is how we create a digital twin of a real-world asset. Reitcircles is now creating a global platform to enable this as this will lay the foundation of the rest of the tokenization process. The focus is on decentralization of the this verification process and enabling a fair and transparent process per country, where individuals / corporation owning the assets are in charge of managing this verification with the help of a decentralized verification marketplace.

Once an asset NFT has been issued, various financial instruments can be created based on this making liquidity availability more decentralized using DeFi instruments.

Mostly a single Asset NFT can in principle be now locked into smart contracts and then a borrowing made against it. In this case, the entire lending process is much easier as the process can be entirely digitized.

The issuance of a bag of FT (Fungible tokens) in exchange for a locked NFT is referred to as fictionalization. This enables creating a more level playing field where we can now trade assets on the same level as equity. There are many financial instruments that allow such tokens to be issued that represent the real world of verified assets.

A real estate token can represent, among other things:

  • Ownership of part of a real property
  • Ownership of the entire real property
  • An equity interest in an entity that controls real property
  • An interest in a debt secured by real property, or
  • A right to share in the profits generated by real property

Real estate tokens can also be differentiated from real estate investment trusts (REITs) since they allow for a specific investment linked to a particular real property, whereas REITs typically facilitate investment into pools of various real estate assets.

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