Tokenization is becoming a big word with many meanings. While I recently wrote about Tokenization as a path to equity, which is different from stock ownership due to the five core elements of the blockchain derived business. There are other implementations which are simpler to understand such as the Tokenization of Real Estate Development and real estate sales.
The topic of real estate development is an interesting topic and this use of Tokenization solves an expensive and recurrent problem. In short real estate developers need capitol to buy land and build commercial and residential properties. They typically get their capitol from banks, at rates and terms dictated by banks, a situation of “thee who has the gold, makes the rules”. The cost of such financing and the often tight timelines mean the developer is under constant pressure to hit building goals and sell the project by a certain date to repay the capitol plus interest.
As you can imagine this is stressful and a frequent complaint is that real estate markets rise and fall even in good locations. So it’s isn’t infrequent that a developer finds himself selling a finished product into a bad market because he has no choice as the loan has come due.
One solution, which has received considerable publicity in the United Kingdom is raising capitol for commercial real estate development via cryptocurrency coin offerings. There were recent cryptocurrency capitol raising examples where 2 billion dollars USD was raised in four successive Token or coin offerings. In these examples there were small, medium and large sized investors, who bought coins with no guaranteed, but a projected 15-20 percent return.
The advantage to the developer is to minimize loan carrying costs, eliminate interest and to finance developments with partners who share the risk. The other advantage is the developer chooses the best time to sell the units and his backers support this as they are all seeking maximization of their shared investment.
I think this is a historic development for cryptocurrency, real estate developers, banks and small investors. The use of Tokens which can sell for low prices and the ease by which both large numbers of Tokens can be sold and fractional ownership be provided, enlarges the potential pool of investors to include everyday people regardless of their cryptocurrency knowledge base. Because the sales force can make the purchases as easy as buying milk at the store.
In addition, considering the much better return on a real estate development versus the average 2% savings account yearly return, the potential pool of investors from savers, retirees and institutional investors is only going to grow as news about this type of investment spreads.
Lastly, most developers have better track records then the stock market for probability of a profitable return and the long term nature of the investment universally lowers taxes, and in some places local and national incentives for development lower taxes even further.
As you can see this change brought about by technology is a new Win-Win situation for developers and investors, and some might say its good for the community as it spreads out the profits amongst more people in a community by allowing access to such investment opportunities by smaller investors. Who are statistically more likely to put their profits back into the economy with consumer spending.
The world of technology is changing the world of finance rapidly, we must all stay educated on financial opportunities around us and thirst for knowledge.
Stay thirsty for knowledge my friends.
✍️ written by Shortsegments
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