In the evolving landscape of real estate, the integration of blockchain technology through asset tokenisation could present a transformative avenue for retailing real estate. This innovative approach, which is getting legally possible and popular in certain countries, not only democratises investment in real estate, but can also introduce a level of liquidity previously unseen in the sector. As India’s real estate market is projected to grow exponentially, reaching $1 trillion by 2030, the adoption of blockchain asset tokenisation with regulatory support could be the catalyst needed for this burgeoning growth.

Essence of blockchain in real estate

Blockchain technology, with its decentralised nature, offers a secure and transparent platform for conducting transactions without the need for intermediaries. This technology underpins the tokenisation process, where real estate assets are converted into digital tokens that represent fractional ownership or interest in the property. These tokens can be traded on blockchain platforms, enhancing liquidity and making real estate investment accessible to a broader audience.

Mechanism of asset tokenisation

Asset tokenisation involves three core elements: the incoming asset (property), the blockchain infrastructure for “substitution” of the asset, and the virtual asset version (digital tokens). This process not only simplifies the investment in real estate but also opens up the market to small investors by enabling fractional ownership. The Boston Consulting Group predicts that asset tokenisation could reach $16 trillion within the next decade, with real estate tokenisation playing a significant role.

Role of Decentralised Finance (DeFi)

Decentralised Finance (DeFi) introduces a digital monetary ecosystem built on blockchain, facilitating borrowing, lending, and exchanging without traditional financial intermediaries. In the realm of real estate tokenisation, DeFi enhances efficiency, transparency, and inclusivity, further revolutionizing the sector.

Real estate asset tokenisation: A new era

Tokenizing real estate assets involves creating digital tokens that correspond to a specific portion of a property, allowing for fractional ownership. This approach not only makes real estate investment more accessible but also increases market liquidity. With the global property market valued at an estimated $228 trillion, tokenisation has the potential to significantly expand investment opportunities and is poised to be a tremendous volume business shortly. This not only increases liquidity in real estate but can also enhance general liquidity in the market for all businesses by allowing getting liquidity out of dormant fixed assets.

Process and regulatory landscape

The process of real estate asset tokenisation encompasses several steps, from identifying the asset and clearing legal regulations to developing smart contracts, launching the token for fractional ownership and ensuring the distribution of income. Regulatory considerations are crucial, as the framework for asset tokenisation is still evolving. Countries like Singapore, Thailand, UK, and USA have already come up with regulations to facilitate asset tokenisation. Despite regulatory aversion for cryptocurrencies in India, there is a need to look at asset based cryptos like real estate differently as it is relatively safe underlying assets and more robust than the traditional fractional funding mechanism. Incidentally, GIFT City in Ahmadabad may be the first to effectively explore Asset Tokenisation in India.

Future outlook and conclusion

The future of real estate asset tokenisation is promising, with potential impacts on traditional financial systems and opportunities for further research and innovation. This approach can revolutionize real estate. As the regulatory landscape evolves and more countries recognize the benefits of asset tokenisation, we can expect a significant shift in how real estate investments are made, ultimately leading to a more inclusive and liquid market.

Blockchain asset tokenisation can bring a significant leap forward for the real estate sector in India. Proper Regulatory framework can enable even Residential Asset Tokenisation triggering a huge market liquidity for investment by start-ups and MSMEs, by enabling fractional ownership, enhancing liquidity, and democratising investment. Tokenisation has the potential to reshape the landscape of real estate investment, making it more accessible and appealing to a wider range of investors. As we move forward, the continued evolution and adoption of blockchain technology will be key to unlocking the full potential of real estate tokenisation, paving the way for a more inclusive and dynamic real estate market in India and beyond.

The author is CEO, Indialand Group. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views.