Owning a trillion-dollar market, why isn't real estate tokenization taking off?

Article by: Sean Lee, Forbes

Translated by: Saoirse, Foresight News

For years, tokenization technology has been regarded as a breakthrough for revolutionizing real estate investment models.

From a theoretical perspective, its advantages are very clear: investors can split high-quality property assets into small amounts, complete investment operations within minutes, rather than taking months as in traditional models, and also enjoy liquidity that traditional real estate cannot match. However, in reality, this promising vision has yet to be realized.

Despite years of development, tokenized real estate accounts for less than 0.1% of the approximately $3 trillion global real estate market. Even in the broader field of physical asset tokenization, with a total on-chain scale of about $31 billion, it still represents a tiny fraction of the overall market.

The huge gap between ideals and reality cannot be ignored.

To this day, investing in quality commercial real estate still relies on intermediaries, high investment thresholds, and long asset holding periods. The idea of smoothly buying and selling real estate tokens has never evolved into a scalable practical application.

The problem has never been a lack of token quantity, but rather the absence of a complete legal, operational, and compliance system that can turn these tokens into credible financial products.

Misplaced Development Priorities

One of the core mistakes in early tokenization exploration: focusing on the technology itself first, rather than considering the investor’s perspective.

Sonia Shaw, founder and CEO of OneAsset, said that the entire industry went astray from the beginning. “Practitioners only think about ‘which assets can be on-chain,’ but ignore the real concern of real estate investors — how to establish trust in an asset.”

This has led to a proliferation of related products. These products appear linked to real estate assets but lack a supporting underlying infrastructure. Asset ownership definitions are vague, profit distribution rules are chaotic, and the so-called liquidity remains theoretical.

This is why, after many attempts, institutional investors still remain cautious. The industry generally treats tokenization as an auxiliary feature rather than the core foundation of building a system.

Infrastructure Has Clear Shortcomings

Fundamentally, the tokenized real estate industry has always lacked a series of essential supporting elements: legally binding asset ownership, compliant transfer mechanisms, professional operation and profit distribution services, and interoperability with the existing financial system.

These are not new concepts but standard practices in traditional real estate investment. Replicating these rules within a tokenized system is the biggest challenge the industry faces.

Shaw explained: “Building a legal ownership framework, compliant transfer mechanisms, and a regulated service system requires significant time, professional resources, and deep regulatory involvement.”

Such work progresses slowly, costs are high, and most of it is behind-the-scenes, making it hard for outsiders to see. This also explains why many early projects tend to downplay these issues. As Shaw said, most projects in the industry pursue rapid fundraising while neglecting infrastructure development.

Without these core elements, even if tokenized real estate demonstrates technological capability, it cannot become a reliable financial product. She added, “Without these foundations, everything else is just superficial effort.”

The Root Cause of Institutional Investor Caution

From the perspective of traditional investors, their skepticism is not about the concept of tokenization itself, but about the current industry ecosystem.

Kevin Crowther, a private wealth manager in the UAE, said, “This model is logically feasible, but the underdeveloped infrastructure and regulatory rules greatly hinder industry implementation.”

For institutions, the biggest pain point is regulatory ambiguity. Issues such as asset ownership, legal validity of rights, cross-regional regulatory adaptation, and others still lack clear answers. Under these circumstances, it’s difficult for institutions to confidently allocate funds.

Additionally, there are practical considerations: most institutions and high-net-worth individuals have already established real estate holdings through mature channels.

Crowther pointed out, “Their current investment tools and governance structures are clear. Tokenization might improve efficiency in some areas, but at this stage, it adds more uncertainty and complexity.”

What a Mature Model Should Have

If the missing infrastructure is completed, the entire investment experience will undergo a qualitative change.

According to Shaw’s vision: investors can complete compliant onboarding, invest in high-quality institutional-grade real estate assets, with much lower minimum investment amounts than traditional standards; profit distribution is transparent and directly linked to rental income.

Most importantly, assets will have real, implementable liquidity. Investors can exit their holdings through regulated secondary markets, avoiding the cumbersome processes of traditional property transactions.

However, such an ideal model remains distant. Although some sectors of physical asset tokenization have achieved faster settlement and improved liquidity, mature cases focused on real estate are still few.

Positive Signs in the Industry

Nevertheless, various signs indicate that the external environment for industry development is gradually changing.

Regulators in regions like the UAE are beginning to issue clearer rules for digital asset regulation. Companies operating under the UAE Virtual Asset Regulatory Authority (VARA), such as Tokinvest, have already launched tokenized real estate products. A series of approvals and measures related to digital securities suggest that tokenized financial products (including real estate tokens) are gradually gaining official recognition.

Meanwhile, other sectors of physical asset tokenization are gaining popularity, with increased institutional participation in areas like government bonds and liquidity funds. Major asset management firms are also ramping up their involvement, indicating that some niche sectors have reached standards recognized by institutions.

The industry’s focus of discussion has also shifted.

Shaw said, “Early projects always faced disputes over asset ownership. Investors keep asking: what rights do I actually own? How are these rights protected by law? And in the past, satisfactory answers were elusive.” Now, the industry is directly confronting and working to resolve this core issue.

Investment Value Still Needs Validation

From an investment perspective, real estate tokenization does not generate entirely new sources of income. Its core value lies in optimizing existing real estate assets’ investment thresholds, operational efficiency, and liquidity.

Shaw stated, “Real estate tokens represent the holder’s rights to tangible properties that can generate stable income, with genuine and legal rights.”

This definition is crucial because it relies on actual income to create value in a sustainable manner, distinguishing it from models that depend solely on market narratives or secondary market speculation.

Even so, to attract large-scale institutional capital, the tokenized real estate model must demonstrate tangible competitive advantages.

Crowther believed, “To gain mainstream capital’s favor, real estate tokenization must prove it has real economic value, not just technological innovation. Currently, most related frameworks are just more complex versions of existing real estate investment models.”

Future Development Trends

The next stage of real estate tokenization will no longer compete on the number of new projects or tokens issued, but on actual operational results.

Shaw said, “Institutions won’t jump in just based on a white paper. They will only act once they see platforms achieving scaled, compliant operations with traceable, auditable full operational records.”

This is the current industry’s key hurdle.

In the coming period, the degree of regulatory rule refinement and the actual performance of platform operations will determine whether this “infrastructure-first” development approach can realize its initial vision.

If successful, real estate tokenization will gradually approach its original ideal blueprint; if stagnating, the gap between industry ideals and reality will persist.

Ultimately, the technology itself is no longer the obstacle; the real bottlenecks are infrastructure and compliance systems.