How Real Estate Tokenization Works: Detailed Breakdown

Real estate tokenization is a relatively new concept that emerged during the development of blockchain technology and the first tokens (2008–2013). The idea behind it is to link digital assets to physical property, dividing it into tokens that can be freely bought and sold.

Today, this concept is becoming increasingly relevant, as investing in real estate worldwide requires significant capital, even for mid-range properties. In some countries, the process is further complicated by bureaucracy, which demands numerous documents and approvals.

Tokenization helps solve some of these challenges by allowing investors to purchase fractional ownership of a property and receive income proportional to their share. Transactions take place directly between buyers and sellers via blockchain, while verification and confirmation of data are automated using smart contracts, eliminating the need for intermediaries.

In this article, we will explore what real estate tokenization is, examine its advantages and disadvantages, and analyze its impact on the modern real estate market.

What is Real Estate Tokenization?

Real estate tokenization is the process of converting ownership rights to a property into digital tokens using blockchain technology. Essentially, tokens act as digital certificates, functioning similarly to shares. The property is appraised and then divided into tokens, which are sold to investors. However, unlike shares, which represent ownership in a company, tokens can be applied to almost any asset, including real estate.

How Does Real Estate Tokenization Work?

As mentioned earlier, the first step in tokenization is determining the market value of the property. This can be done through an independent appraisal or based on current market data. Once the valuation is complete, the method of tokenization is selected, typically following one of two main approaches:

• Direct tokenization. Tokens represent fractional direct ownership of the property.
• Indirect tokenization. The property is first transferred to a legal entity, and tokens represent shares of ownership in that entity (e.g., a company that holds the property).

Once the approach is decided, the total value of the property is divided into a predetermined number of tokens, set by the owner or managing entity. The number of tokens is chosen to balance affordability and accessibility for investors. The more tokens issued, the lower the price per token.

For example, a $500,000 property could be divided into 100,000 tokens, with each token valued at $5.

Tokens are created using smart contracts on blockchain networks such as Ethereum, Polygon, or Solana. Smart contracts establish ownership conditions, transfer mechanisms, and payment distributions using an automated system, similar to a vending machine: you pay, you receive the asset. These contracts execute transactions automatically based on predefined rules, eliminating the need for third-party verification or intermediaries.

Once issued, tokens are listed on specialized platforms such as RealT, Propy, SolidBlock, and Securitize. These platforms facilitate trading, allowing investors and property owners to buy and sell tokenized real estate seamlessly.

Advantages of Real Estate Tokenization

Like any other technology, real estate tokenization comes with both benefits and drawbacks. To gain a clearer understanding, it’s best to evaluate each advantage while considering its real-world impact critically.

• Investment accessibility. The unit price of a token is significantly lower than the cost of an entire apartment, reducing the barrier to entry and opening the market to a wider range of investors. However, some platforms impose minimum investment requirements. For example, €50 on European platforms like Sabai Property and Splint Invest or $1000 on Propy.
• Increased liquidity. Real estate is traditionally an illiquid asset, as selling a property can take weeks or months. Token transactions occur much faster, especially on the secondary market. However, in practice, token liquidity is highly dependent on demand on the platform. If there are no buyers, selling a tokenized asset quickly may be difficult.
• Transaction security. All transactions are recorded on the blockchain, and smart contracts automatically execute agreements for purchases, rentals, and income distribution. Due to the immutable nature of blockchain, transaction data is permanently stored and cannot be altered or falsified. However, smart contract vulnerabilities and coding errors still pose risks, as they are created by humans and can be exploited by hackers.
• Lower transaction costs. By eliminating intermediaries, transaction fees for brokers, lawyers, and notaries are significantly reduced or even eliminated. However, one important factor to consider is blockchain transaction fees (gas fees). Every process on the blockchain requires computational power, and fees are rarely fixed. Instead, they fluctuate based on network congestion. During peak times, fees can increase exponentially, with transaction costs ranging from $0.41 to $20. For tokens priced between $2 and $50, these fees can be quite significant.
• Automated income distribution. If a tokenized property is rented out, the rental income is automatically distributed among token holders in proportion to their shares. Likewise, expenses such as repairs and tenant search costs are also proportionally shared.
• Global investment opportunities. Since blockchain directly connects buyers and sellers, tokens can be purchased from anywhere in the world. However, regulations vary across countries, and in some jurisdictions, tokenized asset transactions are considered illegal. Examples include China, Morocco, Algeria, and Egypt, where such operations are strictly prohibited.

Examples of Real Estate Tokenization in Dubai

Dubai is at the forefront of technological progress, actively integrating innovative solutions into its real estate sector, and tokenization is no exception.

• Desert Pearl project by DDX Global. In March 2024, DDX Global, a real estate development company, announced the launch of the Desert Pearl project. This upcoming development will include hotels, apartments, a business cluster, a retail hub, and a private marina. Currently, the project is in the planning and site selection stage, but the developer has stated that once construction is completed, the property will be tokenized.
• Agreement between DAMAC group and MANTRA. In January 2025, DAMAC Group, one of Dubai’s largest real estate developers, signed a $1 billion agreement with the blockchain platform MANTRA. The deal involves tokenizing DAMAC’s real estate assets across the Middle East, allowing them to be traded on the MANTRA platform.

How to Enter the Tokenized Real Estate Market?

A key factor for success in this market is choosing the right platform. The rapid development of new technologies has led to an influx of startups, but many fail to reach a sustainable level. This is why it is crucial to select reliable and well-established platforms. Before registering, investors should always check whether the platform operates under a recognized jurisdiction or exists in a legal gray area. Some of the most reputable platforms include RealT, Propy, and Securitize.

Taxes are another important aspect of owning tokenized real estate. In some countries, real estate tokens may be classified as securities or shares, meaning that any profit generated from them is subject to taxation. Failure to comply with tax regulations can lead to legal consequences, including criminal prosecution.

Once an investor acquires tokens, it is essential to ensure their secure storage. Unlike traditional property ownership, where government agencies protect ownership rights, tokenized assets are the sole responsibility of the investor. The best practice is to use hardware wallets (Ledger, Trezor) and avoid storing assets on exchanges, as they have been frequent targets of hacks and cyberattacks.