Democratising property investment: the rise of real estate tokenisation

In the ever-evolving landscape of real estate, the market's trajectory is nothing short of astounding. By the end of this year (2024), the global real estate market is poised to soar to an astonishing value of $637.80 trillion. Within this vast market, residential real estate stands as a dominant force, projected to command a market volume of $518.90 trillion by the same year.

Going forward, the sector is expected to maintain its upward momentum, with an annual growth rate of 3.41% (CAGR 2024-2028), culminating in a staggering market volume of US$729.40 trillion by 2028, according to Statista.

Investing in real estate has long been considered a lucrative avenue for steady and low-risk wealth creation, yet traditional barriers such as high capital requirements and illiquidity have limited access for many aspiring investors. Primary examples of illiquid assets include real estate (including home equity), natural resources, land, commodities, public infrastructure like mines/ports, fine art, computing infrastructure, and private equity.

On top of that, there are multiple other asset classes which are only accessible to limited wealthy investors/institutions due to constraints on ticket size, e.g., pre-IPO stocks, hedge funds, infrastructure projects, commodities and alternate investment instruments, private credit.

The total size of illiquid asset tokenisation globally would be $16 trillion by 2030, according to a BCG and ADDX report. However, the crypto and blockchain revolution is poised to reshape the landscape of property investment and make it more democratic through attracting more retail investors.  

What is real estate tokenisation?

Real estate tokenisation, leveraging blockchain technology, is revolutionising real estate investment by making it more accessible, liquid, and efficient. This innovative process transforms real estate assets into digital tokens, allowing for fractional ownership and democratising access to investments previously reserved for the wealthy. As the global real estate market continues to expand, tokenisation stands at the forefront of a movement towards a more inclusive and dynamic sector.

This completely new and revolutionary approach is an upgrade from real estate investment trusts (REITs).

Real estate investment trusts: a traditional approach

Traditionally, REITs have offered investors exposure to real estate assets.

A REIT is a fund or company that owns, operates, and manages real estate assets, with shares often listed on public exchanges. Investors in REITs participate in the income generated from the properties, receiving dividends from the company's profits.

While REITs have provided a means for retail investors to access real estate markets, they typically require significant capital and lack the granularity of direct property ownership. A total of 893 listed REITs with a combined equity market capitalisation of approximately $1.9 trillion (as of December 2022) are in operation around the world, according to the BCG and ADDX report.

Current players: pioneering innovation

Projected to reach a market value of $1 trillion by 2030, real estate tokenisation is still in its nascent stages, occupying less than 0.14% of the global real estate market. This gap underscores the immense potential for growth and the opportunity to redefine investment paradigms.

Leading projects like Tangible, RealT, Landshare, PropChain, and Parcl exemplify the sector's diversity and innovation. 

• Tangible offers tokenisation and a marketplace for RWAs via NFTs, aiming to diversify investor exposure beyond real estate.
• RealT specialises in fractional real estate and REITs, offering a separate token for each property with intuitive UI and straightforward investment in rental income properties.
• Landshare offers tokenised rental property and revenue sharing for fractional owners, with a focus on KYC and reissuance capabilities.
• PropChain focuses on tokenised rental property and revenue sharing, specifically targeting the Dubai real estate market.
• Parcl provides real estate perpetual indexes for US states, offering a novel approach to real estate investment through city index perps
• Estate Protocol is a tokenised real estate investment platform, making it easier and accessible for everyone. By tokenising properties in stable economies, we allow small-scale investments in global real estate, offering a share in rental income and appreciation.

These platforms showcase a range of strategies from direct property investment to index-based trading, each contributing to the burgeoning ecosystem with unique technological infrastructures and business models. 

Current scenario: breaking barriers

The market size for real estate tokenisation was $2.7 billion in 2022, and its growth trajectory indicates that it could reach $1 trillion by 2030, according to a report by Deloitte. The Boston Consulting Group goes a step further and estimates that the total size of illiquid asset tokenisation globally would be $16 trillion by 2030.

Illiquid assets include real estate (including home equity); natural resources, land, commodities, public infrastructure like mines/ports, fine art, computing infrastructure, and private equity.

Despite its seemingly colossal scale, this figure represents a mere fraction—less than 0.14%—of the global real estate market, highlighting the vast potential for growth and innovation within this sector.

The Boston Consulting Group estimates that the tokenised market will be 10% of the Global GDP by 2030. 

Considerations before investing

While real estate tokenisation offers numerous benefits, it also comes with its own set of challenges. One major concern is regulatory compliance and legal uncertainty. As the regulatory landscape evolves, there is a risk of regulatory changes impacting the tokenisation process and creating compliance burdens for issuers and investors. Additionally, there are cybersecurity risks associated with blockchain technology, including potential hacks, data breaches, and geopolitics.