What is the process of tokenizing a property

Blockchain technology is emerging and  attracting lots of attention across the world due to its incredible benefits. Blockchain has made significant changes to many industries including the real estate industry. Tokenizing properties is one the exciting products of blockchain technology. Blockchain, by introducing asset tokenization has made a bridge to connect the real world assets with the blockchain network and digital world.

However, the market is still suffering from lack of adequate information. Many people have no idea what a tokenized tangible asset is, how it is created and how it works.

First of all, let’s go through the meaning of  property tokenization and see how it works.

Property tokenization and the way it works

Property tokenization is the process of dividing a property to equal shares and converting each share to tokens by utilizing a blockchain network. Assume you own an apartment in Dubai Marina and it is worth AED 10’000’000. You can divide the apartment ownership to say 1000 equal shares and convert each share to a token. That will be 1000 tokens, worth AED 10’000 each and all under your ownership. The ownership and authenticity will be stored safe within the blockchain network. At this stage, you are able to sell your tokens to small scale investors who are looking to fractionally invest in the Dubai real estate market. The whole process of selling the tokens to other people, like standard agreement, agreement terms, agreement settlement and money and ownership transfer will be taken care of by smart contracts which are already coded in the blockchain network for your project.

How to tokenize a property

Property tokenization brings a lot of advantages to the real estate sector. It makes fractionalized ownership easy and possible. Besides, it brings more liquidity to the sector. Furthermore, it provides a transparent and reasonably secure environment for market participants and creates cost efficiency. This is how blockchain technology makes the real estate market more efficient. Now, let’s dive deeper and see what it takes to tokenize a property.

1- Identify the property

The first step is to select a property to tokenize. The Property is better to be in a popular area and easy to be rented out. If you are planning to sell the asset-backed tokens to other people, be aware that the majority of the investors are interested in properties that are located in well-known areas and make constant rental income.

2- Select the type of Token

Basically, there are two options for you, when it comes to choosing the token type; STO or NFT. STO stands for Security Token Offering, which is suitable for making the property available for fractional ownership. NFT or Non-Fungible-Token is another option  through which you can tokenize a property to one or multiple tokens that is completely unique. Depending on your purpose of tokenizing the property, you may choose one of those token types. 

3- Understand and comply with regulations

If you are targeting local customers for your tokens, you must have a full understanding of the local laws about issuing and distributing property tokens. Likewise, if you are looking for customers from all around the world, you must fully understand and comply with relevant international law as well as the local regulations.

4- Develop your framework

It is essential to have a framework detailing your plan in terms of number of tokens, their price and the buyers’ entitlements. This works as a plan during your project, so make sure to have it in hand as going forward.

5- Choose your blockchain network

The tokenization process and smart contracts will all be happening in the blockchain network, so you definitely need one for your project. Depending on your project and requirements, you can choose one out of quite a few good blockchain networks out there.

6- Develop your project smart contracts

Smart contracts are like the brain for the body. All requirements, compliances and regulations about your tokens, how the trade process between two parties is, and how the money and ownership will be transferred between buyers and sellers must be digitized through developing smart contracts for your project. You must look for an experienced and professional developer to code your smart contracts.

7- Make a Token management App

You must develop and create an asset management application, in order to securely store the tokens for yourself and also investors. It is worth it to remind you that the app must be blockchain based.

8- Token distribution 

Now it’s time to issue and distribute your tokens on the blockchain network.

Final words 

Blockchain is emerging and making big changes to all industries. The Real estate sector like other sectors is affected by the blockchain and it is more to come. Fractional ownership is now becoming easily possible by tokenizing properties and it brings lots of benefits for the market including investors. However, if you are a property owner and interested in tokenizing your property, you must be very careful to firstly comply with regulations, either local or international. Besides, make sure to take your steps with care and take advantage of a professional and experienced programmer in order to make things done as smooth as possible.