Tokenized real estate. How it works?
Introduction
One of the most talked about topics in the DeFi is NFTs. Though largely known as useless JPEGs to layperson, they can offer some utility. Fractional ownership of real estate where a property is tokenized and offered to investors as NFTs is one of those utilities.
Fractionalization can revolutionize the real estate investment market by allowing small investors to have a share in high-end real estate or other high-value real assets, such as jets and yachts. Several platforms have been launched recently where any investor can purchase a share of a listed property.
Aqarchain
Aqarchain is a real estate investment platform that allows users to purchase fractions (shares) of a real estate. One of the differences of Aqarchain from other similar platforms is that you can buy a piece of other high-value tangible assets, such as jets and yachts.
Properties are reviewed and verified by AqarChain team before they are posted on the platform. A minimum share that can be purchased is 1 square ft. An investor can make a purchase with multiple crypto assets, BTC, ETH, XTZ (Tezos), BNB, USDT, USDC among others.
According to their website, AqarChain is the first decentralized real estate NFT marketplace going to Metaverse. Purchasing a real estate property or part of it listed on the platform gives an investor the right to claim the property with similar features in the AqarChain virtual land.
Bonfire
Built on the Polygon blockchain, Bonfire’s focus is on income-producing real estate assets. Once the property is verified, it’s getting tokenized and listed on the marketplace where investors can buy those tokens either with cryptocurrencies or bank accounts.
If the property is sold out successfully (if all of tokens are bought by investors), the seller of the property gets its funds through the newly created “DAO LLC”. The buyers of the asset are automatically directed to the DAO. Being a DAO member gives you the right to vote on various governance issues, such as approving or not a maintenance request, changing rents, or selling the asset.
Bonfire’s plan for the next year is to develop an ecosystem with multiple services, property management, and tax reporting among others.
CitaDAO
CitaDAO is a fractional real estate platform developed on the Ethereum blockchain. It works in the following way. After verifying the ownership of the property, the landlord lists it through the process called Introducing Real Estate On-Chain (IRO). If the IRO is successful, i.e., if the received funds are enough to buy the property, an SPV (special purpose vehicle) will buy the real estate. After which the property is tokenized, and IRO participants will get RET (Real Estate tokens). Any NFT holder can use Buyout Provision and buy out all other RET holders, thus being the only owner of the property.
If the IRO fails, all the accumulated funds will be redistributed to the investors who sent them.
LandShare
LandShare is one of the projects that makes real estate investing as affordable as it can be: the minimum investment amount is $50. How does it work? For each to-be-tokenized property a legal entity is created which convert its shares to special tokens (Asset Tokens). Investors receive their cash flows from the real estate in the form of BUSD, the stablecoin issued by Binance (LandShare has been built on the Binance Smart Chain).
LandShare intends to offer crowdfunded house flipping services, too. House flipping is buying a house, renovating it, and selling it for a profit. However, since most investors cannot afford to buy a house, even a distressed one, with cash, crowdfunding will make it more accessible to small investors.
Another feature that can make LandShare more attractive to investors in the future is auto-compounding. If you don’t cash out your rental yield but buy more Asset Tokens with it, your rental yields will compound over time.
Lofty.ai
Another marketplace which facilitated the purchase and sale of real estate is Lofty.ai. Once the property is listed on the platform, investors can buy part of it; and once it is sold, investors will start to receive return which is equal to (sale price of the property – selling fees) / investor’s percentage in that property. If the property is not sold out until the deadline, the listing will be cancelled, and investors will get back their investments.
Lofty.ai is built on the Algorand blockchain. Algorand has low fees for transfers and high transaction throughput rates.
RealT
One of the biggest players, if not the biggest one, in the tokenized real estate industry is RealT. Minimum investment is a price of a single token for a listed property which can range from $50 to $150. Properties are selected by seasoned real estate investors and managed by local professionals with the monitoring of the RealT team.
Investors, who are paid when the property management service collects rent from the tenants, receive cash flows in the form USDC stablecoin. They can cash out their funds or reinvest them.
Conclusion
Real estate NFTs democratize property investment process. The largest of all financial markets, real estate has been available to institutional investors and high net worth individuals for a long time. Fractionalized real estate platforms are going to change this. They increase liquidity and accessibility in otherwise illiquid market.
These platforms capitalizing on the tokenization of real assets turn real estate (and other high-value tangible assets) into digital tokens, thus making real estate accessible to a larger number of potential buyers. Other advantages of fractional real estate investing include not dealing with the property management issues, and diversifying the investment portfolio, among others.