Although many individuals and institutions see real estate as an attractive investment alternative, the expensive initial investment creates a significant barrier to entry for the average investor or property builder. Combined with inefficient paper-based and labor-intensive processes, as well as a lack of oversight causes limited participation, liquidity and performance. Making the real estate market accessible to a wider investor base requires improving efficiency in the initial investment process and the ongoing management and administration of property holdings. Issuing real estate tokens on a distributed ledger technology (DLT)-based platform and creating a marketplace for issuers (property owners), investors and other stakeholders may be the solution to taking the real estate market to the next level.
Think of the tokens as representations of shares of a property, encoded with the property ownership and rights information. The distributed ledger is the single source of truth for all parties and a clear, transparent, immutable and real-time record of who owns what. Using a private DLT-based platform, as opposed to a public blockchain, allows the market operator to validate participants and enables the information pertaining to a transaction to only be available to participants involved in the transaction. Automating processes, including signoffs and the exchange of funds, secures the privacy of market participants, centrally linking through the tokens all of the documentation associated with issuing land titles.
Utilizing a DLT platform eliminates the need for reconciliation between parties through channels such as email and agreements. Taking a new asset to market and completing a transaction is much quicker and less of a hassle. Fractionalizing property into affordable shares allows the real estate market to become more inclusive and available to a wider investor base, removing the high barrier to entry and allowing issuers access to capital.
Assembling counterparty information, pricing sources and other data in a way that makes it easy for token holders to consume and use for investment decision making allows the workflow for the entire lifecycle of the asset to be standardized and automated across a complex ecosystem.
Theoretically, the tokens could be based on a legal structure whereby a trustee looks after the interests of the token holders. Many processes – including payment confirmations, management fee deductions, escrows for repairs and dividend distributions – could be executed automatically through smart contracts, and token holders could have a digital record of activity. Smart contracts could also handle default scenarios, such as when tenants do not pay on time or the managers fail to perform their duties.
The evolution of DLT and the ability to tokenize and trade any asset digitally has unveiled new opportunities for exchanges and startup marketplaces. To get started, you need a robust enterprise DLT-based platform that offers a seamless workflow throughout the entire lifecycle of tradeable assets and add-on services, including market surveillance, reporting and risk management.
To learn more about Nasdaq’s technology for tokenizing real estate assets on a DLT-based platform, you can visit our website.