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2024 | Book

Tokenization in Real Estate

Opportunities and Challenges


About this book

Traditionally, real estate has been burdened by challenges such as illiquidity, limited accessibility, opacity, complex transactions, high costs, and substantial capital requirements. However, tokenization emerges as a potential solution to many of these issues. In this book, the authors thoroughly investigate the innovative concept of tokenization in the real estate domain. Tokenization involves digitizing real estate assets and ownership, complemented by fractionalization, facilitated through blockchain technology. The book elucidates the fundamental principles, technologies, opportunities, and impediments associated with real estate tokenization. To fully capitalize on the theoretical advantages, the book furnishes specific recommendations for the overall market landscape and active participants, providing crucial guidance to encourage wider adoption and successful realization of the benefits offered by tokenized real estate.

Table of Contents

Chapter 1. Introduction
Real estate is traditionally considered to be illiquid, difficult to access, lacking in transparency, time-consuming and costly in its transaction and investment processes, and has large capital requirements. Nevertheless, real estate is considered one of the world's largest asset classes, valued at around $200 trillion, however, only around $19 trillion is currently accessible to investors through shares, funds, or other investment vehicles. Hereby, tokenization promises to overcome many of these common shortcomings.
This book is an inductive exploratory study on the still novel topic of tokenization in real estate. Tokenization in real estate can refer to both the digital representation of a real estate asset and the digital representation of ownership of a real estate asset, often in combination with fractionalization. This research aims to understand the concept, underlying technologies, opportunities, and challenges of tokenization in real estate. Limitations stem from the novelty of the topic and with a primary focus on the Swiss market.
Elena Schmid, Michael Truebestein, Matthias Daniel Aepli
Chapter 2. Technological Background
This chapter provides a comprehensive summary of research papers, books, and articles focusing on the broad mechanics of distributed ledger technology, blockchain, smart contracts, and tokenization. They are the core elements needed for the tokenization of real estate, explaining them first ensures a sound basis and understanding for the following research and work. Furthermore, selected advantages and challenges are summarized.
Elena Schmid, Michael Truebestein, Matthias Daniel Aepli
Chapter 3. Tokenization in Real Estate
The chapter covers the tokenization in real estate in detail and will first present a review of the academic literature which has been published on the topic so far. Then, the different types of tokens are defined, and potential applications are presented. This is followed by examining current challenges, opportunities as well as the legal basis in Switzerland. Finally, the newest developments are reviewed, including an international outlook.
Elena Schmid, Michael Truebestein, Matthias Daniel Aepli
Chapter 4. Methodology
Due to the nature of the topic, an inductive exploratory research strategy was defined for the analysis. This strategy should allow for preliminary research on the topic of tokenization in real estate and create a basis for further, potentially deductive, research. In line with the defined strategy, a qualitative approach was chosen.
Throughout the research, both primary and secondary research was conducted. The literature review and secondary research is discussed first as it presents the backbone of this paper and served as a basis for the following primary research. The primary research is then reviewed, it consists of three case studies and five expert interviews. As established the research questions are as follows: RQ1: What is tokenization in real estate and how does it work? What are the underlying technologies?, RQ2: What does the implementation of tokenization look like, opportunities and challenges?, RQ3: Case studies and expert interviews: What are current best practices and lessons learnt?, RQ4: What recommendations can be given to different market participants going forward?
Elena Schmid, Michael Truebestein, Matthias Daniel Aepli
Chapter 5. Case Studies and Expert Interviews
As part of this chapter, three case studies on tokenized real estate properties in Switzerland are presented: Hello World in Baar, Bahnhofstrasse 52/B52 in Zurich and Crowdlitoken Portfolio. Each case study starts with an introduction to the tokenized property as well as the basics of the tokenization process. The companies which managed the tokenization are then assessed, including the legal and technical basis on which they carried out the process. In a second step, interviews that were carried out with the respective founders or representatives of management to gain additional insight into the tokenization of real estate in Switzerland are summarized. The summaries further focus on reflecting the interviewees' opinions on best practices, lessons learnt, and crucial aspects going forward.
Elena Schmid, Michael Truebestein, Matthias Daniel Aepli
Chapter 6. Conclusion and Recommendations
In this chapter, the research questions defined are reviewed and answered, by drawing from all the information gathered throughout both the secondary and primary research. As part of this chapter, the consequent recommendations to market participants are formed.
The primary research demonstrated how tokenization in real estate differs from its theoretical exemplary idea. It, furthermore, illustrated how there are a variety of ways to set up the tokenization of a real estate asset, both from a technical as well as from a structural and legal perspective. Hereby, the analysis did not reveal one best practice to follow. The case studies were complemented with expert interviews. The interviewees reinforced many of the results of the secondary research. They further described how they entered the real estate token market early on, highlighting past and current challenges. All in all, they were confident that their achievements sent a strong message to the market and concluded that it is not a question of if a broader implementation of blockchain and tokenization will be seen but when.
Elena Schmid, Michael Truebestein, Matthias Daniel Aepli
Chapter 7. Summary and Outlook
The future role and scope of blockchain technology and tokenization are not yet clear. They might simply represent a new technological basis for the market to work on or they might shape the market to a larger extent. A wider implementation will require overcoming a series of challenges, however, the potential that blockchain and tokenization hold is significant. Also, markets and regulations are evolving favorably, and participants are convinced of the future of the concept. So, while blockchain and tokenization might not be the solution to all problems they are likely here to stay and offer valuable solutions.
To guide a wider adoption where the theoretical benefits can be realized as fully as possible, specific recommendations were formed as a result of this study. Hereby, five recommendations for the overall market environment and five recommendations to participants active within this market are suggested.
Elena Schmid, Michael Truebestein, Matthias Daniel Aepli
Tokenization in Real Estate
Elena Schmid
Michael Truebestein
Matthias Daniel Aepli
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