Tokenization of real estate assets I. (The representation of real rights in the blockchain).
Over the last year we have been anticipating the treatment of an issue that we understand as crucial as far as distributed book technology is concerned and to which we are now going to dedicate the next entries in this blog: the tokenization of real estate assets.
In previous posts we have already been dealing with tokenization and in them we defined it as the act of representation of non-digital realities through the creation of units of digital value destined to circulate through a blockchain . The choice of words is not trivial in these cases because, as we will see in the next post, it is not the same to understand that a token represents a good or right in a chain of blocks than to understand that the token incorporates the right or that what circulates with the token is the good represented (incorporated).
The object, the purpose, of tokenization is the first step that we must climb in order to understand the problem of real estate tokenization . In the excellent work of Professor( Legal Challenges and opportunities of blockchain technology in the real state sector — some compelling reasons are collected such to undertake tokenization of real estate assets such as avoiding (or minimizing) the costs derived from intermediaries in real estate transactions, allowing greater transparency in operations, facilitating cross-border acquisitions of real estate by minimizing inefficiencies such as tax and giving the possibility of favoring circulation of real estate assets due to the speeding up of sales.
There are also proposals aimed at the representation of a real estate through several tokens , which would allow the circulation of fractions of a good allowing the acquisition of it in several operations or in a single operation by several people. This last proposal, which seems useful to us for personal property of extraordinary value, seems to us inefficient in the case of real estate; however, this possibility should not be ignored.
All of the above must be understood without prejudice to the fact that the tokenization of real estate implies, in turn, the creation (or perhaps it is more appropriate to say the consolidation) of a new form of transmission in the property: the digital form. We will dedicate part of the next post to this aspect.
The second question we must face is to determine what is tokenized . The usual thing, in extra-legal terms, would be to think that what is represented through tokenization is the real estate itself and that the transmission of the token entails the transmission of the real estate. However, the need to provide legal coverage (and erga omnes efficiency ) to the transmission of real estate through a blockchain requires, as we will justify below, that what is represented on the blockchain through the Tokenization is not the asset itself, but the real right that, over it, may be held by whoever requests the creation of the token .
This position, we understand, is essential for the success (and usefulness) of real estate tokenization assets because, if the representation were made on the property as a physical, tangible and infungible asset, this would make it impossible, in our opinion, the transmission of other types of rights that one or more people, in accordance with our legal system, could hold over a real estate. On the goods, things, people have real rights, which are those by virtue of which the owner enjoys a direct, immediate and absolute relationship with the good and also, by virtue of its negative aspect, they impose on all those who They are not the holders of the real right not to disturb the relationship of the holder with the thing. In addition, these real rights, when they are registered in the Property Registry, are enforceable erga omnes, its existence and configuration are presumed and imply the defense of its owner; all this in the terms that we will deal with in future posts.
Thus, in the event that the digital representation was made of the property as a physical asset, it would not be possible to transmit in digital form limited real rights such as usufruct, surface rights, the right of option, the right of flight, etc. All this without prejudice to its difficulty of introduction through smart contracts as pointed out by Professor.
In addition, the representation of real law will allow the circulation of rights through a blockchain even in those cases in which real rights correspond to several different people, since these rights, being reflected in the Property Registry, are re presentable through different tokens. And, on the other hand, the very characteristics of blockchain technology prevent the same token from circulating in parallel transmissions; A different question will be the case in which the same right is tokenized on different platforms, and then issue board whose solution would anticipate: the intervention of the Property Registry in the process representation of the real right through tokenes operable s in a block chain.
Determined the purpose and object of tokenization , we must enter the “how”; in the operation. Explain the tokenization of real estate assets, which, as we have already explained, implies the representation of a real estate right through a digital asset called token in a blockchain network , cannot ignore the physical reality of the tokenized property . It is, therefore, essential that the digital world (which in this case is the token ) is connected and linked to the physical world (the property or, if you like, the real right held over it).