Security Tokens Series: Real Estate Tokenization

4 min readMar 22, 2021

This is the fourth article in the five-part Security Tokens Series where we analyze the key characteristics of security tokens and how they will impact the future of digital assets.

The First Tokenization Of A Real Estate Property

Tuesday, October 9, 2018, the world of security tokens saw the first tokenization of a real estate property. St. Regis Aspen announced that they would sell 18.9% of their hotel in 18 million digital tokens. This opened another initiative where owners took a real estate property and separated it into a multitude of tokens. In addition to the growing interest in the world of blockchain and tokenization, the real estate economy is also experiencing a favorable climate.

The State Of The Real Estate Market And Real Estate Tokenization

Indeed, after a study on the state of the real estate market, the MSCI was able to come to some very encouraging conclusions:

“The size of the professionally managed global real estate investment market grew from $7.4 trillion in 2016 to $8.5 trillion in 2017” and also Handson Banking analyzed that “for most people, 2/3 of family wealth is in the family home. Home equity can be a source of capital for all your wealth-building goals, and a home can be a significant legacy for the next generation.”

In this article we will see how owners and investors can benefit from this tokenization.

Real estate tokenization is the process of creating a digital asset that represents a single property or a portfolio of properties on a blockchain-based system.

The momentum in real estate stems from the accelerated movement towards a digital economy where financial and physical assets will increasingly have digital representations of their unique value. The World Economic Forum predicts that by 2025, blockchains will store 10% of all global GDP.

Countries and individual states are already making the necessary regulatory and legislative changes to make this a reality. For example, the state of Delaware in the United States recently passed a Senate Bill allowing the maintenance of corporate share registries on a blockchain, therefore eliminating the need for duplicate record keeping and the United Arab Emirates has embarked on a strategy to move all government services onto the blockchain.

Advantages Of Real Estate Tokenization

The programmable nature of a smart-contract and its self-regulation can allow for a gain in effectiveness and efficiency in addition to facilitating processes.

Transaction speed is improved. Buying or selling processes will become more direct than they are now, one just has to buy a token on the platform and there’s no need for an intermediary. The automated dividend payout and governance distribution considerably reduce paper-work costs and a token's built-in compliance enhances settlement speed.

This would also allow the right to vote for those who own the token through a DAO, for example, in response to an offer for a tokenized property.

The major advantage of the blockchain, immutability, can have a very fruitful use for this sector, given the importance of the ownership history for owners and regulators. Also, this digital immutable structure reduces the possibility of fraud considerably.

In most cases, tokenization aims to improve and expand access to capital globally. Dividing into “sub-properties” makes the investment accessible to a larger mass of investors because price access barriers are reduced. Thus, thanks to tokenization, an average investor who cannot afford a property can still own a fraction of it. In addition, as stated by Sean Cope, a real estate expert, to Dlapiper.com: “ The ability to sell minority ownership interests also gives the issuer a desirable level of flexibility, allowing for extraction of liquidity without the loss of control.”

Tokenizing Real Estate For The Olympics

Lately, tokenization of real estate has become increasingly trendy in the world of blockchain.

Tezos, in partnership with Alliance Investments Ltd, has just announced the tokenization of $643 M in planned real estate development. Rani Zahr, the CIO of Alliance, said: “Raising funds through an STO is more efficient, cost-effective, autonomous and democratic than traditional financing. We believe that we are at the forefront of a technological change that can disrupt the current funding paradigm.” On the other side of the world, the Land of the Rising Sun sees similar opportunities in STOs. In preparation for the 2020 Olympic Games, Tokyo-based Lead-Real Estate Co., Ltd. unveiled a plan to tokenize many real estate projects as well. The company stated that: “The fluctuating real estate market in Japan (yields in urban areas are 3–10%) and the negative interest rate, a Japanese political measure, maximized the appeal of Japanese real estate with the 2020 Olympic games coming around the corner.”