The Real Estate Revolution: Tokenization of Rental Contracts
Introduction: In the digital age, innovations continue to transform industries and the real estate sector is no exception. An emerging phenomenon that is gaining momentum is the tokenization of rental agreements, a practice that promises to revolutionize the way we manage and perceive real estate transactions.
What is Tokenization of Rental Contracts?
Definition and Concept
Do you know what a company share is? Every action represents a participation in the company. Tokenization works in the same way, but in a digital environment, in it, we divide the asset (floor, contract, rights or royalties) into smaller parts called Tokens, with which you can trading in a digital asset market, in the same way that we can trade stocks through brokers or platforms.
Operation
Although it is possible to tokenize real estate assets, debt or contracts, in this article we will focus on the tokenization of the rental contract. The process is nourished by blockchain, the same technology as cryptocurrencies. On platforms like Nash21, we create the asset, upload our information and that of the tenants, the term we want to tokenize, the monthly/annual performance and a payment method. At the end of the process we will have created a smart contract, created in the form of an NFT.
Once this process is completed, it is divided into tokens and put up for sale.
Any object can have a digital version, transferring to it the properties and rights that they had in the real world.
Technology blockchain allows tokenization because each action on this platform can be identified as unique and unambiguous. For example, if you decide to create an NFT or non-fungible token of a photograph that is very special to you, not only will the creation of this NFT and its link to the photograph be perfectly traceable, but so will any interaction that occurs with it, for example. For example, transfer it to another user or sell it.
Typically sold one year in advance in exchange for 11 months. That is, if the annual rent is €7.200 (€600/month), it would sell for €6.600 (11 months).
Tokenization benefits
As an owner you can capitalize in a time of need without having to liquidate assets or take out loans, since an amount is advanced at once, which you can use in another investment or need. As an investor, it allows you to access the returns of a real estate asset without having to make the large investment that it entails or having to take out a mortgage.
- Accessibility and Fractionation: Tokenization allows investors of all sizes to participate in the real estate market on a fractional basis.
- Greater Liquidity: Tokenization can make real estate assets more liquid by making them easier to buy and sell.
- Transparency and Security: Blockchain technology, underlying tokenization, guarantees the transparency and security of transactions.
In short, tokenization makes it possible to automate and simplify processes, increase transparency and security, as well as offer a new source of financing. It has elements to become a valuable tool in the future.
Challenges and Considerations:
The tokenization of real estate assets is solely and exclusively that which grants the owner of the token a real right (or property right) over the home.. This, currently, does not exist in Spain and everything else is tokenization of different assets or financial instruments, not real estate.
La tokenization that is being used in Spain is a personal right «which is the one granted to a person who has the right to demand or demand compliance with an obligation«. In Spain
- Participatory Credit Tokenization: A property is divided into multiple shares or tokens and sold to the public. When you acquire a token, you do not acquire rights over the property, but rather credit, that is, the right to receive financial remuneration for the rent of the property.
- Tokenization of rental contracts: allows you to sell/auction the contracts and get an advance of 6, 12 or 24 months.
- Tokenization of social shares: tokenize the shares of a company that owns the real estate.
Conclusion
The tokenization of rental contracts is opening up new possibilities in the real estate market, offering significant benefits for both tenants and owners. As technology continues to evolve, it is crucial to stay on top of these innovations that are defining the future of real estate.
