We are moving towards a digital economy where there is a wide scope for digital representation of the array of assets right from financial assets to the physical properties like real estate. The real estate sector is one of the prominent sectors which will embrace the new disruptive technology of the Digitization or Tokenization of Assets that will influence the coming decades. As per the World Economic Forum’s forecast, by 2025, blockchains based innovations including the tokenization will cover 10 % of the world GDP.

Tokenization in terms of Real Estate Sector

Considering the Real Estate domain, this sector is influenced by multiple stakeholders, multi-specialty professionals, massive finances, regulations varying with geographical jurisdictions among the most conspicuous factors. These facets have made this industry somewhat complex in nature. While the markets are thriving tremendously, startups and even large established organizations are now exploring new solutions to mitigate the dysfunctions in this sphere.

Defining the Tokenization in Real Estates Segment

Real Estate Tokenization is the process of converting a single property or a multi-profile property into a single digital asset. Turning the real estate into tokenization allows the property owners to issue tokens through blockchain-based platforms. Each token represents a certain amount of shares for the real estate asset. External investors can purchase these tokens and can become partial personal owners of that asset. The tokenization of the assets allows the investors to sell their tokens to anyone and anywhere even on the online platforms.

CAPP Platform for Real Estate Tokenization

In a candid interview with the CEO of the CAPP Technology Platform, Pramod Attarde expounded the process and cleared the ambiguity of creating digital assets for physical properties. He extensively elaborated on how the CAPP platform digitizes Real Estate Assets. Pramod initially stated that the professionally managed real estate investment segment has proliferated enormously to 8.5 trillion in 2017 from $7.4 trillion in 2016 and is still growing at a larger pace.

And considering the US market, he referred to the Federal Reserve SCF microdata of 2013 and pointed out the prospects in tokenization. He stated that 8.25% of households in the US hold approximately 70.28 % of private wealth worth $45.5 trillion.

More about CAPP platform

The CAPP platform primarily uses Ethereum blockchain to tokenize Commercial Real Estate Tokenization, Residential real estate Tokenization, Single real estate tokenization, Trophy Tokenization. CAPP has a proficient team of experts on the technological front, financial consultation and auditing, legal compliance and a robust marketing team for promotions and distributions.

Three primary Steps while Tokenization of Real Estate Assets
Pramod Attarde states that the digitization of these assets undergoes three phases:

i) Deal Structuring

ii) Technology Selection

iii) Token Creation and Distribution

A) Deal Structuring

Deal Structuring involves multiple elements including the category of the asset, jurisdiction area, shareholders type, regulations as per the category of the asset. Mostly existing deals are tokenized to ensure liquidity for current investors before raising capital for new offers.

Deal structuring involves

i) Categorization of an asset – considering the specific asset properties to be digitized

ii) The legal status of the asset – The potential asset should be bounded with proper legal bindings before converting it to an investment vehicle. It further should include:

• Real estate fund
• Single asset special purpose vehicle(SPV)
• Project finance
• Real Estate Investment Trust (REIT)

iii) Investor Types: Investors jurisdiction and the type of investor to be dealt with matters

iv) Shareholders Rights

v) Execution Regulations

B) Technology Selection

After the legal structure for the property is determined and the deal structure is in the pipeline, few technological decisions are to be made.

i) Blockchain/token Selection – Selection of blockchain on which token will be created and an assortment of data to be transferred on it.

ii) KYC AML Vendor – Finalizing the AML /KYC vendor to integrate him with platform and security infrastructure. 

iii) Custody Solution – Finalizing the physical custody solution for the tokens and for the investors as well.

iv) Selection of Market place – Selection of primary or secondary market, crypto-exchanges for issuance of the token.

C)Token Creation Promotion and Distribution

The final crucial step after structuring the deal and finalizing the technological provision is the promotion and launch of the token and its distribution to the investors.

It undergoes various steps :

i) The payment option – Mode of the transaction (whether fiat money or cryptocurrencies) is decided while accepting payments after issuance of tokens.

ii)Token creation- Through a web application, the token is launched and supplied further called minting.

iii) KYC /AML – The investors are facilitated with KYC/AML process including their wallet linking to the digital wallet.

iv)Token distribution – Live events or pre-decided sales of tokens are lined up for the distribution process. Either it is done by listing the tokens on the exchanges and platforms or directly transferred to investors’ accounts.

Pramod Attarde summarized that CAPP is the most viable platform for raising capital through property-backed tokens or through crowdfunding.

It provides a comprehensive turnkey solution for potential investors as well as for the property owners.

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Jayashree Ingle

CBW - External Analyst

INDIA