Author: Sean Lee, Forbes
Compilation: Saoirse, Foresight News
For years, tokenization technology has been viewed as a breakthrough to revolutionize the real estate investment model.
On a theoretical level, its advantages are quite clear: investors can fractionally own premium property assets with small amounts, complete investment operations within minutes instead of taking months like the traditional model, all while possessing liquidity that traditional real estate cannot match. However, in reality, this beautiful vision has yet to materialize.
Despite years of development, tokenized real estate still accounts for less than 0.1% of the approximately $300 trillion global real estate market. Even in the broader field of real-world asset tokenization, the total on-chain value is around $31 billion, representing only a minuscule proportion of the overall market.
The huge gap between ideal and reality can no longer be ignored.
To this day, investing in quality commercial real estate still relies on intermediaries, high investment thresholds, and long asset holding periods. The vision of smoothly buying and selling fractional real estate tokens has never translated into a substantial, scaled application.
The problem has never been a shortage of tokens themselves, but the lack of a complete legal, operational, and compliance system that can make these tokens credible financial products.
Development Direction is Backwards
One of the core mistakes made in early tokenization exploration: prioritizing the technology itself rather than thinking from the investor's perspective.
Sonia Shaw, founder and CEO of OneAsset, said the entire industry started off on the wrong foot. "Practitioners were only thinking about 'what assets can be put on-chain,' neglecting the real question real estate investors care about—how to build trust in an asset."
This has led to a proliferation of related products. These products appear to be linked to real estate assets but lack supporting foundational structures. Asset ownership is vaguely defined, rules for profit distribution are chaotic, and the so-called liquidity remains purely theoretical.
This is why, after years of attempts, institutional investors remain on the sidelines. The industry generally treats tokenization as an add-on feature, not the core foundation for building a system.
Noticeable Shortcomings in Infrastructure
Fundamentally, the tokenized real estate industry has always lacked a series of basic yet crucial supporting elements: legally effective asset ownership, compliant asset transfer mechanisms, professional operation and profit distribution services, and interoperability with existing financial systems.
These are not new concepts but common standards in the traditional real estate investment field. Replicating this set of rules in a tokenized system is precisely the industry's biggest challenge.
Shaw explained: "Building a legal ownership framework, compliant transfer mechanisms, and a regulated service system requires significant time, professional resources, and deep regulatory involvement."
This type of work progresses slowly, is costly, and often happens behind the scenes, making it hard for outsiders to see. This also explains why many early projects avoided tackling these issues. As Shaw put it, most projects in the industry blindly pursued rapid fundraising while neglecting the deep construction of infrastructure.
Without these core elements, even if tokenized real estate demonstrates technical capabilities, it cannot become a reliable financial product. She added, "Without these foundations, everything else is just superficial."
Root Cause of Institutional Investor Hesitation
From the perspective of traditional investors, what they question is not the concept of tokenization itself, but the current industry ecosystem.
Kevin Crowther, a private wealth manager in the UAE, said: "The model itself is logically viable, but incomplete infrastructure and regulatory rules greatly hinder its implementation."
For institutions, the biggest pain point is ambiguous rules. There are still no clear answers to many questions regarding asset ownership, the legal validity of rights, cross-jurisdictional regulatory adaptation, and more. Under these circumstances, institutions find it difficult to confidently allocate funds.
Beyond this, there are practical considerations: most institutions and high-net-worth individuals already invest in real estate assets through mature channels.
Crowther pointed out: "The governance structure of the investment tools they currently use is clear. Tokenization might improve efficiency in some aspects, but at this stage, it actually adds more uncertainty and complexity."
Characteristics of a Mature Model
If the missing infrastructure were to be completed, the entire investment experience would undergo a qualitative change.
According to Shaw's vision: investors could complete compliant onboarding processes, invest in quality institutional-grade property assets with entry amounts far lower than traditional standards; profit distribution would be transparent and directly linked to property rental income.
Particularly critical is that assets would possess genuine, actionable liquidity. Investors could exit positions through regulated secondary markets, freeing themselves from the cumbersome processes of traditional real estate transactions.
However, currently, such an ideal model remains out of reach. Although some segments of real-world asset tokenization have achieved faster settlement and improved liquidity, mature cases focused specifically on real estate are still scarce.
Positive Signs Emerge 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 like Tokinvest, operating under the UAE's Virtual Assets Regulatory Authority (VARA) rules, have officially launched tokenized real estate products. A series of approvals and initiatives related to digital securities mean that tokenized financial products (including real estate tokens) are gradually gaining official recognition.
At the same time, other segments of real-world asset tokenization are gaining momentum. Institutional participation in areas like treasury tokenization and liquid funds has significantly increased, and large asset management institutions continue to invest more, indicating that some niche sectors have reached standards acceptable to institutions.
The industry's focus of discussion has also shifted.
Shaw said: "Early projects constantly faced controversy over asset ownership. Investors always asked: What rights do I actually own? How are these rights legally protected? In the past, satisfactory answers could never be given." Now, the industry is facing and beginning to address this core issue.
Investment Value Remains Unproven
From an investment perspective, real estate tokenization does not create a new source of returns. Its core value lies in optimizing the investment threshold, operational efficiency, and asset liquidity of existing real estate assets.
Shaw stated: "A real estate token represents the holder's real, legal rights to a physical property that can generate stable income."
This definition is crucial. It distinguishes a sustainable model that derives value from actual income generation from models that rely solely on market narratives and secondary market speculation.
Even so, to attract large-scale institutional capital, the tokenized real estate model must demonstrate tangible competitive advantages.
Crowther believes: "To gain the favor of mainstream capital, real estate tokenization must prove it possesses genuine economic value, not just stays at the level of technological innovation. Currently, most related structures merely replicate existing real estate investment models in a more complex form."
Future Development Direction
The next stage of development for real estate tokenization will no longer be about the number of new projects or tokens issued, but about actual operational results.
Shaw said: "Institutions won't rush in based solely on a white paper. They will only act when they see a platform operating at scale in compliance and with traceable, auditable, complete operational records."
This is also the threshold the entire industry needs to cross now.
In the coming period, the maturity of regulatory rules and the actual performance of platform implementation will determine whether this "infrastructure-first" development approach can fulfill the initial vision.
If this path can be successfully walked, real estate tokenization will gradually approach the original ideal blueprint; if it remains stagnant, the chasm between industry ideals and reality will persist.
Ultimately, technology is no longer the obstacle to industry development today; infrastructure and compliance systems are the real bottlenecks.
