Security Token Offerings (STOs) are still a new thing and a lot of questions about them remain unanswered. While everybody seems to agree that security tokens are the next big movement in token finance nobody is quite sure how this next generation of Initial Coin Offerings (ICOs) will work.
Unlike utility tokens, which only give users access to a network, security tokens are backed by some underlying asset. As of now, the vast majority of security tokens that have been issued have been so-called ‘share tokens,’ representing the ownership in a part of a company. However, the tokenization of things like debt, investment funds, and even real estate, seems to show promise.
One of the biggest financial decisions that regular consumers can make in their lifetime is the purchase of a home. For businesses, a sure sign of success is the ability to purchase office space.
Some blockchain theorists have suggested that tokenized real estate stands to democratize this massively important financial transaction. In theory, real estate tokens could lead to the advent of new financial arrangements for the purchasers of property.
For example, a property developer could offer to sell fractions of a single property and charge rent for the rest. In such an example, a young family could purchase 50% of the tokens representing a $200,000 house, and pay rent to the remaining token holders, in order to live there. With careful planning, such an arrangement could possibly be a better deal than those offered by traditional financial structures, such as mortgages.
There are a lot of benefits to real estate tokens. In the opinion of one expert, these include relatively low fees, access to global assets, transparency, and liquidity.
Not surprisingly, a few high profile examples of tokenized real estate have already shown early access. One of the first such examples, a luxury Manhattan condo development, has been appraised and fractionalized at $30 million.
But where real estate tokens might have the most disruptive potential is in our own region – Asia.
The real estate markets in many countries in Asia, at the moment, are out of balance. In Thailand, for example, rapid development has led to a situation where there is too much supply and too little demand for real estate. There, tokenization may provide a way for foreign investors to purchase up property. Eventually, the influx of buyers should put things back into balance.
On the other hand, in countries like Vietnam, where there is a lot of demand for real estate but where development is too slow, tokenization could provide a solution as well. Real estate tokens could be used to finance the initial costs of development. Early investors could come in, buy these tokens, then sell them to Vietnemese homebuyers at a profit.
Just like all kinds of security tokens, real estate tokens are still in their early days. This tangible use case for STOs seems to show a lot of potential. We will just have to wait and see.
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