Real Estate Tokenization: How It Works and What Are Its Benefits and Risks

Real estate tokenization, or RET, is a growing trend that has opened new opportunities for both property owners and crypto investors. RET enables investors to enter the real estate market without investing a large sum of money. At the same time, it enables property owners to sell a fraction of their property.

Here’s all you need to know about the main benefits and challenges of RET.

What Is Real Estate Tokenization?

Real estate tokenization is the process of converting real estate assets into digital tokens and storing them on the blockchain. It also refers to creating security tokens that represent ownership of a fraction of a real estate property. In other words, RET allows crypto investors to own a small portion of a real estate property without purchasing the entire property. The goal of RET is to make real estate investing accessible to a wider range of investors.

The tokenization process is complex. It involves selecting the property, building the token structure, and finding the property’s fair market value. This is why this process is performed by real estate tokenization companies. Tokenization also involves the use of smart contracts. The primary role of smart contracts is to automate transactions and improve security.

What Is Tokenization?

Tokenization is the process of digitalizing physical assets, such as art, real estate, or equities. It can also be used to protect sensitive data.

How Is Real Estate Tokenization Different From REITs?

REIT stands for real estate investment trusts. REITs are companies that enable traders to earn income from real estate without having to buy the property. On the other hand, RET enables investors to own a fraction of a physical property through the tokenization process.

The key difference between these two terms can be seen in their ownership structure. REITs provide indirect ownership through shares, while RETs provide direct fractional ownership. Moreover, REITs are traded on stock exchanges, while RETs are traded on secondary markets, making RETs more liquid.

RETs are also more accessible since they have a lower entry barrier. For example, investors can own a fraction of a real estate property for as little as $50. On the other hand, REITs usually require a minimum investment of $1,000 to $2,500, while for private REITs, this figure can go up to $25,000.

Benefits of Real Estate Tokenization

The main benefits of real estate tokenization include:

Increased liquidity. Real estate properties are considered illiquid assets because they are difficult to sell. RETs enable investors to own a fraction of the property, increasing its liquidity. Namely, investors can sell their fractions as tokens instead of selling the whole property, which can take months. RETs also remove the need to use third parties.
Fractional ownership. This reduces the financial barrier to entering the real estate market — everyone will be able to invest in real estate assets.
Transparency and security. Thanks to blockchain technology, all transactions will be recorded on an immutable ledger. This will reduce the possibility of manipulation and fraud. Moreover, the tokenization process involves smart contracts that will automate the transaction processes.

Real Estate Tokenization Market Size

The global RET market was valued at $3.8 billion in 2024. Analysts believe that by 2027, its value could reach $4.22 billion, while by 2034, it could jump to $26 billion.

Several factors will influence its growth. These include advancements in blockchain technology and innovations in smart contracts. Both will make the tokenization process more effective. Wider adoption by institutional investors will also contribute to its growth.

Real estate tokenization companies like Harbor and Elevated Returns will be the key players driving the growth of the RET market. On that note, in 2023, Harbor partnered with Securitize to tokenize a $16 million commercial property. On the other hand, Elevated Returns is currently planning to tokenize $1 billion worth of real estate in Southeast Asia.

What Are the Problems With the Tokenization of Real Estate?

The main challenges of real estate tokenization can be attributed to the following factors:

Regulatory issues. True tokenization can only be achieved by unifying the legal frameworks that differ from country to country. This lack of uniformity makes investing in RETs risky. Moreover, RETs must be integrated with the current legal systems; otherwise, the market won’t accept them.
Smart contract security loopholes. Smart contracts are vulnerable to reentrancy attacks. This type of attack enables hackers to steal funds by exploiting the timing of transactions.
Market acceptance. The tokenization of real estate properties is a relatively new trend, which means that many investors don’t understand its potential and risks. This lack of education can lead to reduced demand for RETs.

Real Estate Tokenization Examples

Examples of successful real estate tokenization projects include:

RealT

RealT is a real estate tokenization platform whose mission is to democratize access to real estate investment opportunities. This platform is available to almost all residents from European, American, Asian, and African countries. Moreover, RealT members can own a fraction of real estate for as little as $50. RealT has 16,100+ active investors from 154 countries. This platform tokenized more than 535 properties so far.

Lufina

Lufina is another successful platform that enables investors to own real estate for as little as $50. This platform offers pre-vetted deals, daily rental payments, and permissionless loans. The permissionless loans have a competitive LTV ratio of up to 70%. Investors can also use their property as collateral.

Luftina has a native token, $FINA, which enables its holders to conduct transactions and vote. At the same time, $FINA token stakeholders will gain access to premium real estate projects.

Harbor

Harbor is a real estate-focused tokenization platform that specializes in security token offerings. This platform enables investors to manage, trade, and issue security tokens backed by real estate. Harbor used the ETH network to tokenize four real estate funds worth $100 million. The company also partnered with Securitize in 2023 to tokenize a $16 million commercial property.

Due to its focus on compliance and security, Harbor is one of the most trusted RET platforms for institutional investors.

How Do I Tokenize My Real Estate?

You can tokenize your real estate in the following way:

Choose a suitable property and determine its market value. You can do that by using comparative market analysis — analyze recent sales of similar properties in your area. You can also hire a professional to assess the value of the property.
Ensure that your chosen property complies with the laws and regulations of your country.
Use blockchain technology to create a security token that will represent the fraction of the property, i.e., a certain amount of ownership.
Use smart contracts to regulate token generation and distribution and to automate transactions.
Launch an ICO or an STO to sell your token. You can launch both private and public sales.
Once the presale ends, distribute the tokens to investors.

Conclusion

Real estate tokenization is a new trend that aims to change how we invest in real estate. Tokenization enables investors to buy, sell, and own a fraction of a real estate property. This means that anyone will be able to enter the real estate market. Tokenization also increases the liquidity of the real estate market. Moreover, it offers more security since all transactions are recorded on an immutable ledger.

However, RET comes with several challenges. These include regulatory issues, smart contract security loopholes, and a lack of acceptance.