Tokenization: The Future Of Real Estate

Karolina

29 Aug 2023
Tokenization: The Future Of Real Estate

The real estate market is undergoing a significant transformation with the emergence of tokenization, a process in which real estate assets are converted into digital tokens stored on a blockchain, allowing for digital ownership and the transfer of fractional shares. With a market size of around $200 million, real estate tokens account for nearly 40% of the digital securities market, making them an increasingly popular investment option.

Read our article about the Real Estate Market

The Process of Real Estate Tokenization

Incorporating blockchain technology, real estate tokenization is a groundbreaking method that combines the conventional real estate sector with modern advancements. The procedure takes place as follows:

1. Choosing an Asset

Initially, a particular real estate asset must be chosen for tokenization. This may include any type of property, such as residential houses, commercial buildings, or even vacant land.

2. Assessing Value

Professional real estate experts and appraisers undertake a comprehensive analysis of the property to establish its market value, ensuring accuracy in the process.

3. Establishing Legal Structure

Due to the intricate nature of real estate transactions and the novelty of tokenization, a legal framework is implemented. This could encompass the creation of a Special Purpose Vehicle (SPV) possessing the real estate asset, which then issues tokens symbolizing ownership shares in the property.

4. Generating Tokens

With the legal structure in place, blockchain technology is utilized to produce digital tokens. Each token signifies a portion of the property's ownership; for example, if a $1 million property generates one million tokens, each token represents $1 of the property's value.

5. Implementing Smart Contracts

These coded agreements on the blockchain automate and adhere to contract terms. In real estate tokenization, smart contracts may automate procedures like distributing dividends to token holders (if the property produces income) or defining conditions for selling or transferring tokens.

6. Token Sale or Allocation

In an initial offering comparable to a stock market IPO, investors can buy tokens or property shares. In some instances, these tokens can also be exchanged in secondary markets, offering liquidity for investors.

7. Managing Property

Even though properties are tokenized, essential management tasks remain necessary, such as dealing with maintenance, leasing, and other routine real estate functions. Token holders receive revenue distribution based on their shares (e.g., rent), with smart contracts streamlining the process.

8. Trading and Liquidity

Tokenization's main advantage is the possibility of enhanced liquidity. Once the initial token offering is complete, investors can trade tokens on secondary markets, enabling more accessible buying and selling of real estate shares, resulting in a more liquid investment than traditional real estate.

9. Exiting and Redemption

Investors seeking to leave their investment can sell tokens in the secondary market. Moreover, provisions may exist for selling properties, with proceeds being distributed among token holders according to their token count.

10. Security and Transparency

An unalterable and transparent ledger of all property-related transactions is maintained on the blockchain. Coupled with blockchain technology's security features, this ensures that the integrity of tokenized real estate investments remains intact.

Pros and Cons of Tokenized Real Estate

The fusion of technology and traditional property investments is embodied by real estate tokenization, which brings its own unique advantages and hurdles:

Real Estate Tokenization Perks:

  • Liquidity: Tokenization offers enhanced liquidity by allowing investors to trade their tokens on secondary markets, in contrast to the general illiquidity of conventional real estate.
  • Fractional Ownership: By breaking properties into smaller units or tokens, multiple investors can partake in property ownership, increasing accessibility to large-scale investments.
  • Worldwide Participation: Tokenized real estate reduces border constraints, enabling global investors to put money into properties elsewhere as long as they comply with local regulations.
  • Transparency: The blockchain's open ledger guarantees that all transactions are documented, fostering trust among investors.
  • Efficiency: Numerous processes are automated via smart contracts, lessening the necessity for intermediaries and expediting transactions.
  • Cost Reduction: Fewer intermediaries and automation can result in decreased transaction expenses and management fees.
  • Diversification: Without requiring substantial capital expenditures, investors can broaden their portfolios by investing in numerous tokenized properties.

Tokenized Real Estate Challenges:

  • Regulatory Ambiguity: Being a novel field, rules surrounding tokenized real estate are still evolving, potentially causing uncertainty for investors.
  • Adoption Pace: Traditional investors may be reluctant to embrace this new model due to unfamiliarity or skepticism about blockchain technology.
  • Security Worries: Even though blockchain is fundamentally secure, concerns relating to smart contract vulnerabilities or platform hacks might discourage potential investors.
  • Market Development: Being a nascent market, tokenized real estate might present limited choices and liquidity for early adopters.
  • Integration with Established Systems: Integrating tokenized assets with conventional real estate systems and practices can be intricate.

Small Investors' Benefits from Tokenized Real Estate

Tokenized real estate is creating fresh opportunities particularly for small investors. Here's how:

  • Accessible Entry Points: Instead of purchasing an entire property, minor investors can acquire tokens that signify a portion of the property, thus lowering entry barriers.
  • Diversified Portfolio: A lower investment threshold makes it more convenient for investors to diversify by acquiring various property tokens or even in distinct geographical regions.
  • Liquidity: Tokenized real estate can be traded on secondary markets, facilitating small investors' efforts in cashing out investments compared to traditional real estate.
  • Transparency: A public ledger records all token transactions, affording investors a transparent overview of the property's transaction background and fostering trust.
  • Decreased Transaction Fees: Blockchain and smart contracts enable a streamlined process, which often results in lower fees, especially advantageous for small investors more sensitive to these expenses.
  • Global Possibilities: Small investors are no longer restricted to local markets and can explore worldwide properties that might have been inaccessible due to significant investment minimums or complicated international transactions.
  • Return Potential: As with any investment, there's the potential for returns. Tokenized real estate provides small investors the opportunity to grow their investments through property appreciation, rental income distribution, or both.

Potential Risks

  • Regulatory Shifts: Investments could be affected by regulatory changes as governments seek to understand the impact of tokenized real estate.
  • Vulnerabilities in Smart Contracts: Imperfectly designed smart contracts might contain weaknesses that can be exploited by ill-intentioned individuals.
  • Value Volatility: The worth of real estate tokens, like other cryptocurrencies, may be subject to fluctuations.
  • Misunderstanding Liquidity: Tokenization provides better liquidity than traditional real estate, but instant liquidity is not guaranteed. Factors such as market maturity, demand, and platform reach will determine the ease with which tokens can be sold.

Conclusion

As real estate and blockchain technology merge, tokenized real estate emerges as a potentially groundbreaking development. Offering transformative benefits such as liquidity, accessibility, and transparency, it also presents novel challenges and risks. Adopting this innovation necessitates a balanced approach, recognizing its limitations while maximizing its potential. As the real estate sector continues to evolve, tokenization may significantly alter our perception and interaction with property investments in the digital era.

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AI in Real Estate: How Does It Support the Housing Market?

Miłosz Mach

18 Mar 2025
AI in Real Estate: How Does It Support the Housing Market?

The digital transformation is reshaping numerous sectors of the economy, and real estate is no exception. By 2025, AI will no longer be a mere gadget but a powerful tool that facilitates customer interactions, streamlines decision-making processes, and optimizes sales operations. Simultaneously, blockchain technology ensures security, transparency, and scalability in transactions. With this article, we launch a series of publications exploring AI in business, focusing today on the application of artificial intelligence within the real estate industry.

AI vs. Tradition: Key Implementations of AI in Real Estate

Designing, selling, and managing properties—traditional methods are increasingly giving way to data-driven decision-making.

Breakthroughs in Customer Service

AI-powered chatbots and virtual assistants are revolutionizing how companies interact with their customers. These tools handle hundreds of inquiries simultaneously, personalize offers, and guide clients through the purchasing process. Implementing AI agents can lead to higher-quality leads for developers and automate responses to most standard customer queries. However, technical challenges in deploying such systems include:

  • Integration with existing real estate databases: Chatbots must have access to up-to-date listings, prices, and availability.
  • Personalization of communication: Systems must adapt their interactions to individual customer needs.
  • Management of industry-specific knowledge: Chatbots require specialized expertise about local real estate markets.

Advanced Data Analysis

Cognitive AI systems utilize deep learning to analyze complex relationships within the real estate market, such as macroeconomic trends, local zoning plans, and user behavior on social media platforms. Deploying such solutions necessitates:

  • Collecting high-quality historical data.
  • Building infrastructure for real-time data processing.
  • Developing appropriate machine learning models.
  • Continuously monitoring and updating models based on new data.

Intelligent Design

Generative artificial intelligence is revolutionizing architectural design. These advanced algorithms can produce dozens of building design variants that account for site constraints, legal requirements, energy efficiency considerations, and aesthetic preferences.

Optimizing Building Energy Efficiency

Smart building management systems (BMS) leverage AI to optimize energy consumption while maintaining resident comfort. Reinforcement learning algorithms analyze data from temperature, humidity, and air quality sensors to adjust heating, cooling, and ventilation parameters effectively.

Integration of AI with Blockchain in Real Estate

The convergence of AI with blockchain technology opens up new possibilities for the real estate sector. Blockchain is a distributed database where information is stored in immutable "blocks." It ensures transaction security and data transparency while AI analyzes these data points to derive actionable insights. In practice, this means that ownership histories, all transactions, and property modifications are recorded in an unalterable format, with AI aiding in interpreting these records and informing decision-making processes.

AI has the potential to bring significant value to the real estate sector—estimated between $110 billion and $180 billion by experts at McKinsey & Company.

Key development directions over the coming years include:

  • Autonomous negotiation systems: AI agents equipped with game theory strategies capable of conducting complex negotiations.
  • AI in urban planning: Algorithms designed to plan city development and optimize spatial allocation.
  • Property tokenization: Leveraging blockchain technology to divide properties into digital tokens that enable fractional investment opportunities.

Conclusion

For companies today, the question is no longer "if" but "how" to implement AI to maximize benefits and enhance competitiveness. A strategic approach begins with identifying specific business challenges followed by selecting appropriate technologies.

What values could AI potentially bring to your organization?
  • Reduction of operational costs through automation
  • Enhanced customer experience and shorter transaction times
  • Increased accuracy in forecasts and valuations, minimizing business risks
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Want to implement AI in your real estate business?

Nextrope specializes in implementing AI and blockchain solutions tailored to specific business needs. Our expertise allows us to:

  • Create intelligent chatbots that serve customers 24/7
  • Implement analytical systems for property valuation
  • Build secure blockchain solutions for real estate transactions
Schedule a free consultation

Or check out other articles from the "AI in Business" series

AI-Driven Frontend Automation: Elevating Developer Productivity to New Heights

Gracjan Prusik

11 Mar 2025
AI-Driven Frontend Automation: Elevating Developer Productivity to New Heights

AI Revolution in the Frontend Developer's Workshop

In today's world, programming without AI support means giving up a powerful tool that radically increases a developer's productivity and efficiency. For the modern developer, AI in frontend automation is not just a curiosity, but a key tool that enhances productivity. From automatically generating components, to refactoring, and testing – AI tools are fundamentally changing our daily work, allowing us to focus on the creative aspects of programming instead of the tedious task of writing repetitive code. In this article, I will show how these tools are most commonly used to work faster, smarter, and with greater satisfaction.

This post kicks off a series dedicated to the use of AI in frontend automation, where we will analyze and discuss specific tools, techniques, and practical use cases of AI that help developers in their everyday tasks.

AI in Frontend Automation – How It Helps with Code Refactoring

One of the most common uses of AI is improving code quality and finding errors. These tools can analyze code and suggest optimizations. As a result, we will be able to write code much faster and significantly reduce the risk of human error.

How AI Saves Us from Frustrating Bugs

Imagine this situation: you spend hours debugging an application, not understanding why data isn't being fetched. Everything seems correct, the syntax is fine, yet something isn't working. Often, the problem lies in small details that are hard to catch when reviewing the code.

Let’s take a look at an example:

function fetchData() {
    fetch("htts://jsonplaceholder.typicode.com/posts")
      .then((response) => response.json())
      .then((data) => console.log(data))
      .catch((error) => console.error(error));
}

At first glance, the code looks correct. However, upon running it, no data is retrieved. Why? There’s a typo in the URL – "htts" instead of "https." This is a classic example of an error that could cost a developer hours of frustrating debugging.

When we ask AI to refactor this code, not only will we receive a more readable version using newer patterns (async/await), but also – and most importantly – AI will automatically detect and fix the typo in the URL:

async function fetchPosts() {
    try {
      const response = await fetch(
        "https://jsonplaceholder.typicode.com/posts"
      );
      const data = await response.json();
      console.log(data);
    } catch (error) {
      console.error(error);
    }
}

How AI in Frontend Automation Speeds Up UI Creation

One of the most obvious applications of AI in frontend development is generating UI components. Tools like GitHub Copilot, ChatGPT, or Claude can generate component code based on a short description or an image provided to them.

With these tools, we can create complex user interfaces in just a few seconds. Generating a complete, functional UI component often takes less than a minute. Furthermore, the generated code is typically error-free, includes appropriate animations, and is fully responsive, adapting to different screen sizes. It is important to describe exactly what we expect.

Here’s a view generated by Claude after entering the request: “Based on the loaded data, display posts. The page should be responsive. The main colors are: #CCFF89, #151515, and #E4E4E4.”

Generated posts view

AI in Code Analysis and Understanding

AI can analyze existing code and help understand it, which is particularly useful in large, complex projects or code written by someone else.

Example: Generating a summary of a function's behavior

Let’s assume we have a function for processing user data, the workings of which we don’t understand at first glance. AI can analyze the code and generate a readable explanation:

function processUserData(users) {
  return users
    .filter(user => user.isActive) // Checks the `isActive` value for each user and keeps only the objects where `isActive` is true
    .map(user => ({ 
      id: user.id, // Retrieves the `id` value from each user object
      name: `${user.firstName} ${user.lastName}`, // Creates a new string by combining `firstName` and `lastName`
      email: user.email.toLowerCase(), // Converts the email address to lowercase
    }));
}

In this case, AI not only summarizes the code's functionality but also breaks down individual operations into easier-to-understand segments.

AI in Frontend Automation – Translations and Error Detection

Every frontend developer knows that programming isn’t just about creatively building interfaces—it also involves many repetitive, tedious tasks. One of these is implementing translations for multilingual applications (i18n). Adding translations for each key in JSON files and then verifying them can be time-consuming and error-prone.

However, AI can significantly speed up this process. Using ChatGPT, DeepSeek, or Claude allows for automatic generation of translations for the user interface, as well as detecting linguistic and stylistic errors.

Example:

We have a translation file in JSON format:

{
  "welcome_message": "Welcome to our application!",
  "logout_button": "Log out",
  "error_message": "Something went wrong. Please try again later."
}

AI can automatically generate its Polish version:

{
  "welcome_message": "Witaj w naszej aplikacji!",
  "logout_button": "Wyloguj się",
  "error_message": "Coś poszło nie tak. Spróbuj ponownie później."
}

Moreover, AI can detect spelling errors or inconsistencies in translations. For example, if one part of the application uses "Log out" and another says "Exit," AI can suggest unifying the terminology.

This type of automation not only saves time but also minimizes the risk of human errors. And this is just one example – AI also assists in generating documentation, writing tests, and optimizing performance, which we will discuss in upcoming articles.

Summary

Artificial intelligence is transforming the way frontend developers work daily. From generating components and refactoring code to detecting errors, automating testing, and documentation—AI significantly accelerates and streamlines the development process. Without these tools, we would lose a lot of valuable time, which we certainly want to avoid.

In the next parts of this series, we will cover topics such as:

Stay tuned to keep up with the latest insights!