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Elizabeth Sample and Brenda Powers with Sotheby’s International Realty in NYC told me in an interview that “in 2022, the global real estate market was valued at around $379.7 trillion. This makes it one of the largest markets in the world.” And they continued:
“We are all connected to the residential or commercial real estate world by owning or renting, etc. By using blockchain technology to create digital tokens for property rights, the buying, selling, and transferring of real estate can be automated. This approach allows investors to invest in real estate more efficiently and increases liquidity in this huge asset class.”
Already, there is a rapidly growing market for tokenized real-world assets representing one of the largest market opportunities in the blockchain industry, with a potential market size—according to a joint study by 21.co, BCG, and ADDX—projected to reach between $10 trillion and $16 trillion by 2030. According to Statista, by 2030, real estate is predicted to account for around one-third of the tokenized asset market, making it the most prevalent category.
Adding fuel to this growth is the US Federal Reserve’s continued efforts to restrain inflation through higher interest rates, which many experts believe will stay for a while. This has investors increasing their allocations in collateral-based cash flows backed by real estate assets that offer a compelling risk-adjusted yield that serves as a stabilizing income source in an investor’s diversified portfolio.
Historically, real estate has been a reliable hedge against inflation, allowing investors to invest in traditional real estate investment trusts, or REITs, and maybe even real estate tokens. Recent reports state that pro-digital asset President-elect real estate tycoon Donald Trump and his son, Donald Trump Jr., are developing a new real estate token project tentatively called “World Liberty” to integrate real estate investments with decentralized finance using blockchain technology.
How can blockchain be used in real estate transactions?
Blockchain technology could serve as a transparent, reliable record-keeping system for real estate ownership and transfers at the city registry level. Smart contracts, programs that run on the blockchain, could be integrated with existing legal processes which govern property ownership, which could automate and record these transfers and ownership changes while the underlying legal processes for property ownership remain in place. This could lower transaction costs by removing dependency on intermediaries and automating many steps.
For example, the Office of the City Register uses a software system called ACRIS to record and maintain New York City real property and certain personal property transfer records, such as mortgage documents for property in the Bronx, Brooklyn, Manhattan, and Queens. However, ACRIS is not a blockchain system; it is a software platform primarily used for managing and automating regulatory compliance processes that are not designed to operate on a decentralized blockchain network.
Blockchain technology can also be used in the tokenization of real estate assets to digitally represent a form of proof of fractional ownership of these assets, which also manages transferability and provides a medium of exchange. The Digital Asset Tokenization System designed by the UDPN team “simplifies the investment process by creating virtual tokens representing rights to assets and providing comprehensive lifecycle services from ideation to trading to asset servicing,” explained Tim Bailey, the vice president of global business and operations for Red Date Technology.
The primary services offered by an asset tokenization platform include the creation and management of digital tokens that represent ownership of physical assets. Other services include token creation tools, a storage wallet, and an exchange and payment gateway.
With tokenization, one real estate asset/investment may be represented by 1,000 or more tokens minted on a blockchain platform, each representing a fraction of the overall real estate asset/investment.
A real estate token can represent a variety of different fractional real estate interests—from a portion of a real estate deed, which could be in the form of a coop or a condo, or a standalone home or an office building built on land subject to a long term lease etc.; to an equity interest in a legal entity (such as an LLC or Trust as in the case of REITs); or ownership of collateralized debt that could be located in different geographic locations or subject to a variety of different laws and taxes.
A token for real estate could be the equivalent of a nonfungible token (a specific unique identifier). Still, it could also be considered a fungible token or a security token as well.
Through smart contracts (computer code that automatically implements and enforces agreements on a blockchain), these tokens can be programmed to make rent distributions to token holders. They can also be programmed to enforce legal compliance requirements, such as one-year lock-up periods in lease provisions, etc.
Other advantages of tokenizing real estate property on a blockchain ledger could include faster processing times for token buy-sell transactions that could be validated and recorded almost instantly without the need for lengthy manual back office processes.
While tokenization of real estate would not directly modify the legal concept of property ownership or make real estate cheaper to invest in, it could make real estate more accessible to a wider range of investors, thereby increasing liquidity in the real estate market by fractionalizing property ownership into tradable tokens, opening the doors to a wider pool of participants to participate in property ownership including small-scale, young retail investors who face record-high home prices, lack of inventory, inflation and high debt that serve as challenging barriers to homeownership globally.
In the United States, an owner-occupied fractional equity residential real estate tokenization transaction has already been undertaken. As Scott Thiel, CEO and founder of Tokinvest, explained:
“The home was purchased for $740,000 in Longmont, Colorado, and was financed with third-party investors directly supplying 97% of the purchase capital as alternative financing to mortgage credit. This residential tokenization project represented tradable investment securities backed by the largest and most stable asset class on earth—owner-occupied homes. Real estate token investors will have the option to buy, trade, and sell tiny, passive positions of homes as an alternative to active, whole home investment. At Tokinvest, we are tokenizing commercial and residential; existing and planned global real estate projects.”
In the Netherlands, Bart de Bruijn, co-founder of EstateX, is building a dedicated RWA blockchain real estate tokenization platform that is expected to launch in Q3 2025. He believes that PROPX security tokens could revolutionize the global real estate industry by transforming a traditionally illiquid and exclusive asset class into one that is accessible, flexible, and liquid, allowing investors worldwide to own small shares in specific real estate properties, invest with minimal capital, and trade these tokenized assets easily on a secondary exchange. Because EstateX will operate on the RWA blockchain, transactions (like buying or selling tokens) would incur gas fees in the range of 20-35% paid for via token ESX as it is the platform’s primary medium for transactions, governance, and staking, which would cover the computational cost of processing transactions.
A comparison of real estate tokens and REITs
The expected high interest rate environment will likely render REITs an established desirable investment product, while real estate tokens might pave the way for a more dynamic, accessible, and investor-friendly future. For your consideration, here is a comparison of how real estate tokens stand out in comparison to REITs.
| REAL ESTATE TOKEN | REITs | |
| LIQUIDITY | Tokens are traded on secondary digital asset exchanges frequently, subject to digital asset market valuations. | REIT shares are traded on major stock exchanges subject to stock market valuations. |
| DIVERSIFICATION | Tokenization lowers investment entry barriers, making real estate investment accessible to everyone by allowing fractional investments in a variety of real estate properties across different regions and sectors. | REITs often require significant capital investment by investors on commercial property. |
| OWNERSHIP & CONTROL | Tokens provide direct fractional ownership of real estate properties, granting investors more transparency and a sense of control over their investments. | REIT shares represent ownership in the trust holding the real estate assets or real estate debt rather than the actual properties, resulting in no direct control over property management decisions. |
| REGULATORY & TAX | Tokens are subject to a more dynamic and evolving regulatory and tax landscape around the world. In the US, absent specific guidance from the SEC, real estate tokens are generally treated as securities subject to registration with the SEC. | REITs benefit from well-established regulatory and tax-efficient frameworks that provide stability and robust investor protections. For instance, the offshore LP structures available in some private REITs can help clients reduce their tax burden significantly as they offer investors a 20% tax deduction on the income they generate, thus enhancing after-tax returns |
| TRANSACTION COSTS & DIVIDENDS | Tokens can charge a fee in the range of 20-35% of generated revenue in the form of blockchain gas fees that reduce returns. However, it could be structured to issue daily dividends and settlement fees to an otherwise illiquid asset class. | REITS provide for quarterly dividend distributions and may carry management and transaction fees that reduce returns, as detailed in the investment offering document. |
| REAL ESTATE TOKENIZATION PLATFORM | Tokens are issued on a real estate platform. The technology risks and cybersecurity concerns associated with the platform should be considered to ensure asset safety. | REITs are not issued on a blockchain platform. |
Because of the complexity and evolving nature of real estate tokenization, it would be prudent to consult with an experienced securities attorney, tax attorney and blockchain specialist before proceeding with a real estate token investment.
From: crypto.news
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