Disclosure: The views and opinions expressed here belong solely to the author and do not represent the views and opinions of the crypto.news main article.
Elizabeth Sample and Brenda Powers of Sotheby’s International Realty in New York told me in an interview that “in 2022, the global real estate market was valued at approximately $379.7 trillion. This makes it one of the largest markets in the world.” And they continued:
“We are all connected to the world of residential or commercial real estate by owning or renting it, etc. Using blockchain technology to create digital tokens for ownership rights can automate the buying, selling and transferring of real estate. This approach allows investors to invest in real estate more efficiently and increases liquidity in this massive asset class.”
There is already a rapidly growing market for tokenized real-world assets that represents 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 will reach between $10 trillion and $16 trillion by 2030. According to Statista, real estate will… predicted accounting for about a third of the tokenized asset market, making it the most common category.
Further fueling this growth are the U.S. Federal Reserve’s continued efforts to curb inflation through higher interest rates, which many experts predict will continue for some time. This has led investors to increase their investments in collateral-based cash flows, backed by real estate assets that offer attractive risk-adjusted returns that serve as a stabilizing source of income 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 perhaps even real estate tokens. Recent reports stands that pro-digital assets President-elect real estate mogul 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 registration system for the ownership and transfer of real estate at the city registry level. Smart contracts, programs running on the blockchain, can be integrated with existing legal processes that govern real estate ownership, allowing these transfers and ownership changes to be automated and recorded, while the underlying legal processes for real estate ownership remain in place. This could reduce transaction costs by removing the dependency on intermediaries and automating many steps.
For example, the Office of the City Register uses a software system called ACRIS to register and maintain real estate in New York City and certain personal property transfer data, such as mortgage documents for properties in the Bronx, Brooklyn, Manhattan and Queens. However, ACRIS is not a blockchain system; it is a software platform primarily used to manage and automate 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 means of exchange. The Digital Asset Tokenization System, designed by the UDPN team, “simplifies the investment process by creating virtual tokens that represent rights to assets and providing comprehensive lifecycle services from ideation to trading to asset maintenance,” explains Tim Bailey, the vice president of Global Business and Operations for Red Date Technology.
The primary services offered by an asset tokenization platform involves 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 can be represented by 1,000 or more tokens minted on a blockchain platform, with each representing a fraction of the total real estate asset/investment.
A real estate token can represent a variety of different fractional real estate interests – from part of a real estate deed, which can be in the form of a chicken coop or an apartment, or a detached house or an office building built on a piece of land subject to a long-term lease etc. .; on 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 may be located in different geographic locations or subject to a variety of different laws and taxes.
A real estate token can be the equivalent of a non-fungible token (a specific unique identifier). Yet it can also be considered a fungible token or a security token.
Through smart contracts (computer code that automatically implements and enforces agreements on a blockchain), these tokens can be programmed to make rental payments to token holders. They can also be programmed to enforce legal compliance requirements such as one-year lock-in period in lease provisions, etc.
Other benefits of tokenizing real estate on a blockchain ledger could include faster processing times for token buy-sell transactions that can be validated and recorded almost instantly without the need for lengthy manual back-office processes.
While real estate tokenization would not directly change the legal concept of real estate ownership or make real estate cheaper to invest in, it could make real estate more accessible to a wider range of investors, increasing liquidity in the real estate market by fractionating ownership . into tradable tokens, opening the doors for a broader group of participants to participate in real estate ownership, including small-scale, young retail investors facing record high housing prices, lack of inventory, inflation and high debt that serve as challenging barriers to homeownership worldwide .
An owner-occupied fractional share transaction for residential real estate has already been completed in the United States. As Scott Thiel, CEO and founder of Tokinvest, explained:
“The home was purchased for $740,000 in Longmont, Colorado, and was financed with outside investors who directly provided 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 in the world: owner-occupied housing. Investors in real estate tokens will have the ability to buy, trade and sell small, passive house holdings as an alternative to active whole house investments. At Tokinvest we symbolize commercial and residential projects; 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 expected to launch in the third quarter of 2025. He believes that PROPX security tokens can 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 around the world to own small shares in specific real estate properties, can invest with minimal capital and easily trade these tokenized assets on a secondary exchange. Since EstateX will operate on the RWA blockchain, transactions (such as buying or selling tokens) would require gas fees on the order of 20-35%, paid via token ESX, as this is the platform’s main medium for transactions , governance and striking. would cover the computational costs of processing transactions.
A comparison of real estate tokens and REITs
The expected high interest rate environment is likely to make REITs an established desirable investment product, while real estate tokens could pave the way for a more dynamic, accessible and investor-friendly future. For your consideration, here’s a comparison of how real estate tokens stand out compared to REITs.
| REAL ESTATE TOKEN | REITs | |
| LIQUIDITY | Tokens are regularly traded on secondary digital asset exchanges depending on digital asset market valuations. | REIT shares trade on major stock exchanges depending on stock market valuations. |
| DIVERSIFICATION | Tokenization lowers the barriers to entry for investments, making real estate investing accessible to all by enabling fractional investments in a variety of real estate assets across different regions and sectors. | REITs often require significant capital investments from commercial real estate investors. |
| OWNERSHIP AND CONTROL | Tokens offer instant fractional ownership of real estate, giving investors greater transparency and a sense of control over their investments. | REIT shares represent ownership of the trust that manages the real estate assets or real estate liabilities rather than the actual properties, resulting in no direct control over real estate management decisions. |
| REGULATORY & TAX | Tokens are subject to a more dynamic and evolving regulatory and tax landscape around the world. In the US, in the absence of specific guidance from the SEC, real estate tokens are generally treated as securities subject to registration with the SEC. | REITs benefit from established regulatory and tax-efficient frameworks that provide stability and robust investor protection. For example, the offshore LP structures available in some private REITs can help clients significantly reduce their tax burden as they offer investors a 20% tax deduction on the income they generate, improving after-tax returns. |
| TRANSACTION COSTS & DIVIDENDS | Tokens can charge a fee on the order of 20-35% of the revenue generated in the form of blockchain gas fees that reduce returns. However, it could be structured to pay daily dividends and interchange fees to an otherwise illiquid asset class. | REITs provide quarterly dividend payments and may incur management and transaction fees that reduce returns, as described in the investment offering document. |
| PLATFORM FOR REAL ESTATE TOKENIZATION | Tokens are issued on a real estate platform. The technological risks and cybersecurity issues associated with the platform must be taken into account to ensure asset security. | REITs are not issued on a blockchain platform. |
Due to the complexity and evolving nature of real estate tokenization, it would be wise to consult with an experienced securities attorney, tax attorney, and blockchain specialist before proceeding with a real estate token investment.
