Owning a trillion-dollar market, why isn't real estate tokenization gaining popularity?

Writing by: Sean Lee, Forbes

Translation by: Saoirse, Foresight News

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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 portions, complete investment operations within minutes, rather than spending months as in traditional models, and also enjoy liquidity that traditional real estate cannot match. However, in reality, this ideal has yet to be realized.

Despite years of development, tokenized real estate accounts for less than 0.1% of the approximately 300 trillion USD global real estate market. Even in the broader field of physical asset tokenization, with a total on-chain scale of about 31 billion USD, it still represents a tiny fraction of the overall market.

The huge gap between ideal 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 cycles. The idea of smoothly buying and selling real estate tokens has yet to become 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.

Development in the wrong direction

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

Sonia Shaw, founder and CEO of OneAsset, said that the entire industry has gone astray from the start. "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 seem linked to real estate assets but lack a supporting underlying infrastructure. Asset ownership is ambiguously defined, profit distribution rules are chaotic, and the so-called liquidity remains theoretical.

This is why, after years of 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 obvious shortcomings

Fundamentally, the tokenized real estate industry has always lacked a series of essential supporting elements: legally effective property rights, compliant asset 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 quick 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."

The root of institutional investors’ hesitation

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

Kevin Crowther, a private wealth manager in the UAE, said: "The model itself is feasible, but incomplete infrastructure and regulatory rules greatly hinder industry implementation."

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

In addition, there are practical considerations: most institutions and high-net-worth individuals have already deployed real estate assets 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 holdings through regulated secondary markets, avoiding the cumbersome traditional property transaction process.

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 introduce clearer rules for digital asset regulation. Companies operating under the UAE Virtual Asset Regulatory Authority (VARA) rules, 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 bond tokens, liquidity funds, and more. Large asset management firms are also ramping up their involvement, indicating some niche sectors have reached standards recognized by institutions.

Industry discussions have also shifted.

Shaw said: "Early projects always faced disputes over property rights. Investors kept 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 solve this core issue.

Investment value still needs validation

From an investment perspective, real estate tokenization does not create 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 legitimate rights to physical properties that can generate stable income."

This definition is crucial. It relies on actual income to create sustainable value, distinguishing it from models based 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 architectures are just more complex versions of existing real estate investment models."

Future development directions

The next stage of real estate tokenization will focus less on the number of new projects or tokens issued, and more 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.