What is real estate tokenization?

Real estate has long been seen as a stable and rewarding investment in India. However, traditional property investment often comes with high entry costs, low liquidity, and a time-consuming transaction process. With the rise of new-age financial technologies, alternative ways to invest in real estate are emerging—one of the most promising among them is real estate tokenization. This innovation blends property ownership with blockchain technology, offering a fresh approach to how people can buy, sell, and trade real estate assets. Read on to learn all about real estate tokenization, how it works and its benefits and risks.

What is real estate tokenization?

Real estate tokenization is a modern investment model where the ownership or cash flows of a property are digitised and represented as tokens on a blockchain. These tokens can then be traded, bought, or sold, much like shares in a company. Each token typically signifies a fractional ownership stake in the property, making it possible for investors to gain exposure to real estate without having to purchase an entire asset.

The process uses blockchain technology to ensure transparency and security, while smart contracts are employed to automate and enforce the terms of ownership, transactions, and rights associated with the property. For example, once a condition in the contract is met—such as payment confirmation—the smart contract can automatically trigger a transfer of ownership or update a digital land registry entry without manual intervention.

Depending on the structure, real estate can be tokenized using either fungible tokens (which divide an asset into equal, tradable units) or non-fungible tokens (NFTs), which represent ownership of a unique property or a whole portfolio. Fungible tokens are typically used for fractional ownership, allowing multiple investors to hold portions of a single property, while NFTs are better suited for representing an undivided claim on a specific asset.

Types of real estate tokenization

Real estate tokenization can take several forms depending on the purpose of tokenization, the type of asset involved, and the desired level of flexibility or access for investors. Below are the main types:

Simple tokenized Real Estate

This is the most straightforward form of tokenization, where an entire property is represented as a single non-fungible token (NFT). Since every property is unique, NFTs—which are inherently distinct digital assets—are a natural fit. Here are the key features of this form of tokenization:

• The NFT acts as a digital certificate of ownership for the property.
• Transferring the NFT can signify a legal change in property ownership.
• The token may contain detailed information such as property history, address, and transaction records.

In some early examples, such tokenized properties have been listed on NFT marketplaces, enabling swift transactions that bypass traditional paperwork and delays.

Dynamic tokenized Real Estate

This takes simple tokenization a step further through the use of dynamic NFTs (dNFTs). These tokens can automatically update information stored within them in real-time based on changes to the property. Here are the key features of this form of tokenization:

• Ownership and transfer mechanisms remain similar to static NFTs.
• The token can reflect real-world changes—such as renovations or repairs—by updating its metadata.
• Visual documentation like photos or videos of the property can be embedded over time.

Dynamic NFTs provide a more transparent view of a property’s condition and history, improving trust among prospective buyers and enabling better-informed decisions.

Fractionalised Real Estate

This approach allows a single property to be divided into multiple parts using fungible tokens, each representing a fractional share of the asset. Here are the key features of this form of tokenization:

• Each token equates to a defined percentage of property ownership.
• Investors can buy, hold, or sell small units, lowering the entry barrier.
• Full ownership may be achieved by holding 100% of the tokens.

This model opens up real estate investing to a broader segment of the population and allows diversification by investing in different property types through token portfolios.

Tokenized Real Estate Cash Flows

In this model, the focus is on tokenizing rental income or other cash flows, rather than ownership of the physical asset itself. These income streams are separated from the property and represented as digital tokens. Here are the key features of this form of tokenization:

• Property ownership and cash flow rights are split.
• NFTs or smart contracts may be used to allocate income to the token holder.
• Monthly rental payments or similar earnings are automatically routed to investors.

This setup allows property owners to gain liquidity by selling rights to future income, while investors gain a predictable revenue stream without owning the actual asset.

Tokenized Real Estate Baskets

Here, a collection of properties and their associated cash flows are grouped into a single investment unit and represented via tokens. Here are the key features of this form of tokenization:

• Fungible tokens represent ownership in the entire portfolio.
• Automated systems distribute rental or other income proportionally to token holders.
• Enhances diversification and reduces risk through asset bundling.

By combining multiple properties into one tokenized basket, this method promotes scale, efficiency, and broader access, especially for institutional investors or real estate funds.

How does real estate tokenization work?

Real estate tokenization works by breaking down a physical asset into digital tokens on a blockchain, each representing a share in the ownership or income generated by that property. The process enables multiple investors to own fractional interests in real estate, making property investment more accessible and efficient. Here’s how it typically unfolds:

• Asset selection: A specific property or a portfolio of properties is chosen for tokenization. Legal due diligence is carried out to ensure the asset is eligible and compliant with applicable laws.
• Token creation: The property is divided into digital units (tokens) using blockchain technology. Depending on the structure, these could be non-fungible tokens (NFTs) for unique, whole-property ownership or fungible tokens for fractional ownership. Smart contracts are created to define the rules of token ownership and management.
• Token issuance: Once created, the tokens are offered to investors via a digital platform. Buyers can invest using fiat currency or cryptocurrency. Each investor who purchases tokens gains a defined claim on the asset—such as a percentage of ownership or a right to rental income.
• Trading and management: After the initial offering, tokens can be traded on secondary markets, allowing for liquidity that traditional real estate markets typically lack. Blockchain ensures all transactions are transparent, tamper-proof, and traceable.
• Distribution of returns: In the case of income-generating properties, rental yields or other cash flows can be automatically distributed to token holders through smart contracts, removing the need for manual processing or intermediaries.

This model works across all types of real estate—residential apartments, commercial complexes, and even trophy assets like heritage buildings or vineyards. For example, a Rs 1 crore property can be split into 1,000 tokens priced at Rs 1 lakh each. Rather than seeking a single buyer, the owner can gradually raise funds from multiple investors while retaining partial control if desired.

Benefits of real estate tokenization

Real estate tokenization presents a transformative shift in how properties are owned, accessed, and traded. By leveraging blockchain technology, this approach brings numerous advantages that traditional real estate models struggle to match.

• Increased Liquidity: One of the biggest drawbacks of conventional real estate is its illiquidity—properties are expensive, time-consuming to sell, and often require significant negotiation. Tokenization changes this by dividing assets into digital tokens that can be traded easily. These tokens represent fractional ownership and can be bought or sold on digital platforms, enabling quicker and more flexible transactions without having to sell the entire property.

 

• Lower Entry Barriers: Traditionally, real estate investing was limited to those with substantial capital. Tokenization opens the door for retail investors by allowing them to invest smaller amounts, sometimes as little as Rs 1 lakh or even less. This democratizes access and enables a broader range of participants, including those previously priced out of the market.

 

• Enhanced Transparency and Security: Blockchain provides a decentralized and immutable ledger for all transactions, offering greater security and auditability. Ownership records, transaction history, and asset details are easily verifiable. This reduces the chances of fraud, data manipulation, or disputes over ownership, instilling more trust in the investment process.

 

• Global Investment Opportunities: Tokenized real estate is not confined by geography. Investors from around the world can gain exposure to international markets without the usual complexities of cross-border transactions. This global accessibility fosters a more diverse investor base and expands fundraising potential for property owners.

 

• Lower Transaction Costs: Smart contracts—the automated code behind tokenized deals—replace many traditional intermediaries like brokers, legal advisors, or notaries. As a result, transaction costs are significantly reduced. Deals are executed automatically once predefined conditions are met, speeding up the process and minimizing overheads.

 

• 24/7 Market Availability: Unlike traditional real estate markets, which are bound by business hours and administrative timelines, blockchain-based transactions can occur anytime. Smart contracts facilitate real-time execution without delays due to paperwork or human processing.

 

• Reduced Counterparty Risk: Smart contracts limit the need for third-party involvement, thereby minimizing risks associated with intermediaries. Transactions are completed directly between parties and validated by the blockchain, making them more secure and less prone to disputes.

 

• Fairer Price Discovery: Tokenized real estate helps establish more accurate valuations. As fractional tokens are bought and sold in open markets, they reflect real-time investor sentiment, making it easier to gauge a property’s fair market value compared to traditional appraisal methods, which often vary.

 

• Better Market Efficiency: By eliminating bottlenecks, reducing human error, and providing continuous transparency, tokenization fosters a more open and efficient real estate ecosystem. It levels the playing field, giving both large institutions and small investors equal access and decision-making power.

Risks and challenges of real estate tokenization

While tokenization holds the promise of revolutionizing real estate investment, it is not without hurdles. From regulatory ambiguity to technical limitations, several challenges must be addressed for this model to scale successfully.

• Regulatory uncertainty: The legal framework surrounding tokenized assets is still in its infancy, with different regions applying varying interpretations and rules. Inconsistencies in how tokenized real estate is classified—whether as securities, digital assets, or something else—can deter investor participation. For example, despite efforts like the MiCA regulation in the EU, a clear and unified global standard is still lacking.

 

• Limited market adoption: Although tokenization has gained attention, it remains a niche concept. Mainstream investors and real estate professionals often lack a deep understanding of how tokenized assets function. Widespread adoption will require significant efforts in education, trust-building, and integration with existing real estate practices.

 

• Technological vulnerabilities: While blockchain itself is secure, smart contracts—the backbone of token transactions—can contain bugs or loopholes. These vulnerabilities can be exploited by hackers, resulting in financial losses. Until security protocols are thoroughly audited and standardized, the risk of malicious attacks or accidental errors remains a serious concern.

 

• Complex licensing and compliance: Creating and managing tokenized real estate requires adherence to strict legal protocols, including licensing for Security Token Offerings (STOs). Navigating these regulatory requirements can be a slow and expensive process, often involving trial and error to achieve compliance in multiple jurisdictions.

 

• Data verification challenges: Accurate and reliable property data is essential for digital real estate transactions. Information like ownership history, renovations, occupancy, and structural integrity must be validated by trusted third parties or data providers. Inaccurate or unverified data can lead to misinformed decisions and legal disputes.

 

• Wallet security and recovery: Tokenized property deeds are typically stored in digital wallets secured by private keys. If an investor loses access to their wallet, recovering the token—and by extension, the property ownership—can be extremely difficult. Unlike traditional deeds that can be reissued by authorities, the decentralized nature of blockchain offers limited recourse unless supported by government or institutional intervention.

 

• Tax and accounting complexities: The taxation of tokenized real estate remains murky in many regions. Without clear guidelines on how to classify gains, calculate liabilities, or report income, investors and companies are left navigating an uncertain landscape. This lack of clarity can deter institutional interest and complicate financial planning.

 

• Scalability barriers: Integrating tokenization into the global real estate market is a monumental task. Large-scale implementation would require major upgrades to the industry’s underlying infrastructure, collaboration between Web3 companies and traditional institutions, and the development of open standards. Current pilots and platforms have yet to demonstrate a scalable model that works seamlessly across borders.

 

• Pricing and valuation issues: Establishing the fair market value of tokenized assets is another challenge. With fractional ownership and volatile market conditions, determining a consistent valuation method becomes difficult. Without standard benchmarks, investors may lack the confidence to engage fully.

 

• Legal disputes and ownership clarity: In traditional systems, ownership disputes can be resolved through legal channels with clear documentation. However, in a tokenized environment, the question of who holds the final authority—especially in cases of fraud or error—is still unresolved. A reliable system for dispute resolution and ownership validation must be developed alongside tokenization efforts.

Legal and regulatory landscape for real estate tokenization in India

Real estate tokenization in India is still at a nascent stage, and the legal environment surrounding it remains largely undefined. While blockchain-based innovation has piqued the interest of regulators and startups alike, the absence of specific frameworks makes navigating this space challenging. Here’s an overview of the current scenario:

• No clear regulation for tokenized real estate: As of now, there is no dedicated legal framework in India that governs the tokenization of real-world assets like real estate. Tokenized property assets can fall under the umbrella of securities, especially if they offer fractional ownership and yield returns—bringing them within the purview of SEBI (Securities and Exchange Board of India). However, SEBI has not yet issued formal guidelines for such instruments, leading to ambiguity in compliance and operational legality.

 

• Classification dilemma of utility vs security tokens: One of the key regulatory uncertainties lies in how tokens are classified. If a token represents a share in a revenue-generating property, it may be viewed as a security token, requiring strict regulatory compliance. On the other hand, utility tokens (which don’t promise financial returns) are less scrutinized. However, most real estate tokens fall into the former category, potentially triggering SEBI’s involvement.

 

• Real estate regulation and blockchain: The Real Estate (Regulation and Development) Act, 2016 (RERA) was designed to promote transparency and accountability in the sector. However, it does not address blockchain or tokenization directly. Any property transaction—tokenized or traditional—must still adhere to RERA norms, including registration, disclosures, and builder obligations.

 

• Restrictions on land ownership and transfer: Land ownership laws in India vary by state, and the process of registering land or property titles remains bureaucratic and largely paper-based. Tokenizing land without digitized, centralized land records adds legal complexity. Moreover, the Registration Act, 1908 and Transfer of Property Act, 1882 do not account for digital tokens as legally valid representations of ownership.

 

• Foreign investment concerns: Under the Foreign Exchange Management Act (FEMA), foreign investment in Indian real estate is heavily regulated. If tokenized real estate becomes a medium for overseas investment, it may violate FEMA norms unless explicitly permitted. This makes cross-border tokenized asset trading particularly risky in the current setup.

 

• Taxation uncertainty: There is no clarity on how tokenized real estate transactions would be taxed in India. Would capital gains apply to every token trade? Would GST be levied on the purchase of fractional ownership tokens? The Income Tax Act does not yet account for digital tokens representing physical assets, leading to compliance risks for both investors and platforms.

 

• Blockchain and digital assets legal standing: Although blockchain technology itself is not illegal in India, its applications—especially in tokenized financial instruments—face scrutiny. The Information Technology Act, 2000, which governs digital signatures and electronic records, does not explicitly validate blockchain-based property transfers.

Real estate tokenization vs REITs

Real estate tokenization and Real Estate Investment Trusts (REITs) are both innovative financial tools aimed at making real estate investments more accessible and liquid. However, they differ significantly in structure, regulatory frameworks, ownership models, and investor experience. Here’s a breakdown of how the two compare:

Structure and ownership model

• REITs: REITs are companies that own, operate, or finance income-generating real estate. Investors purchase shares in the REIT, and in return, they receive dividends from the rental income or capital gains generated by the portfolio. Investors do not directly own any part of the underlying property.

 

• Tokenization: Real estate tokenization involves dividing a physical property into digital tokens using blockchain technology. Each token represents a fractional ownership stake in a specific property. Investors become partial owners of the asset, with rights to a share of rental income or appreciation.

Regulation and compliance

• REITs: REITs are heavily regulated by the Securities and Exchange Board of India (SEBI) in the Indian context. They must comply with strict norms related to asset holdings, income distribution (typically 90% of income must be distributed), and public disclosure.

 

• Tokenization:Tokenized real estate operates in a regulatory grey area in India. There are no defined rules under SEBI or other bodies governing token offerings or fractionalized real estate ownership via blockchain, although such tokens may be treated as securities depending on their structure.

Liquidity and trading

• REITs: Listed REITs trade on stock exchanges, offering relatively high liquidity and the ability to buy or sell shares during market hours. However, their prices can be influenced by market sentiment beyond real estate fundamentals.

 

• Tokenization: Tokenized real estate is designed to enhance liquidity by allowing peer-to-peer transfers or trading on digital asset marketplaces. However, in practice, secondary markets for tokenized assets are still developing, and liquidity remains limited compared to REITs.

Transparency and technology

• REITs: While REITs publish regular financial reports and disclosures, they are still subject to traditional real estate opacity, and investors rely on centralized management for operational oversight.

 

• Tokenization: With blockchain as the underlying technology, tokenization ensures greater transparency, traceability, and automation (e.g., smart contracts for income distribution). Investors can potentially track asset performance in near real-time.

Investment accessibility

• REITs: REITs are typically accessible through stock exchanges and require investors to meet certain minimum investment thresholds. In India, the minimum application value for REITs is relatively higher for retail investors.

 

• Tokenization: Real estate tokenization offers greater flexibility in entry points, often allowing micro-investments with as little as a few thousand rupees, depending on the platform—opening doors for retail and younger investors.

Diversification potential

• REITs: By design, REITs offer built-in diversification across multiple assets, reducing risk for investors.

 

• Tokenization: Investors can cherry-pick individual properties to invest in, offering a high degree of customization but also concentrating risk unless tokens are spread across different assets.

What to consider before entering the real estate tokenisation market?

As real estate tokenization gains momentum, both asset managers and investors must approach this innovation with careful planning and due diligence. While the promise of increased liquidity, transparency, and accessibility is attractive, the tokenization process introduces new complexities. Here are key considerations to keep in mind before entering the tokenized real estate space:

• Evaluate blockchain infrastructure: Choosing the right blockchain is one of the most crucial decisions in the tokenization journey. Not all blockchains offer the same level of performance, scalability, or security. While some networks deliver high transaction speed and robust security features, they might also come with higher operational costs. Conversely, more affordable options may not offer the level of scalability or security required for real estate applications. Carefully assess factors such as compliance capabilities, data privacy and integrity, smart contract functionality, interoperability and network reliability. Selecting the right blockchain partner is not just a tech decision—it directly impacts legal, operational, and investor confidence.

 

• Understand custody and storage: Storing tokenized real estate assets presents a unique challenge. Unlike traditional assets, digital tokens require secure wallet solutions and reliable custodianship. While individuals can opt for self-custody, businesses and institutional investors often turn to third-party custodians, including fintech platforms and banks that specialize in digital asset storage. However, this segment is still evolving and often demands advanced blockchain expertise. Professional advice is recommended to identify the right custody setup that balances security, accessibility, and compliance.

 

• Navigate taxation and accounting complexity: Taxation rules and accounting treatments for tokenized assets can differ significantly from conventional real estate or equity holdings. For instance, the transfer of a token representing property ownership might trigger capital gains tax or other reporting obligations not typically associated with traditional real estate transactions. As regulatory frameworks evolve, it’s important to consult with legal and financial advisors to ensure proper reporting and tax compliance from the outset.

 

• Define your investment model: Investors should clearly identify how they intend to participate in the tokenized real estate market. Options include direct equity ownership in tokenized properties, fractional ownership through tokens representing small stakes in real estate, and investing in tokenized funds that pool capital across multiple properties. Understanding the structure and rights associated with each investment type helps investors align their choices with their risk appetite, return expectations, and liquidity needs.

 

• Prioritize cybersecurity: While tokenization can enhance data protection by replacing sensitive information with encrypted tokens, it is not a complete cybersecurity solution. Organizations must implement robust security protocols to guard against breaches. This includes hosting tokenization servers in secure, segregated environments, regularly auditing smart contracts, and implementing strong access controls and multi-factor authentication. A proactive approach to cybersecurity ensures that sensitive ownership data and investor information remain protected throughout the lifecycle of the asset.

Future outlook for real estate tokenization in India

While real estate tokenization in India is still in its infancy, various trends and developments point to a promising, albeit cautious, future. Here are key factors that will shape its trajectory:

• Rising Interest Among Startups and Innovators: Several Indian proptech and fintech startups are exploring tokenization models for fractional ownership, blockchain-based leasing, and digital land registries, signaling early momentum in the space.

 

• Need for Regulatory Clarity: The absence of a clear regulatory framework remains a major roadblock. A dedicated policy from SEBI or RBI, inspired by global models like the EU’s MiCA regulation, could unlock institutional participation and boost investor confidence.

 

• Growing Awareness and Demand for Fractional Ownership: Tokenization can significantly lower the entry barrier for real estate investment, making it accessible to retail investors, especially millennials and young professionals looking for alternative investment options.

 

• Integration with India’s Digital Economy Vision: Government-backed initiatives like Digital India, IndiaStack, and UPI provide a supportive digital infrastructure that could integrate seamlessly with blockchain-based real estate platforms in the future.

 

• Potential for Use in Decentralized Finance (DeFi): Tokenized real estate assets could eventually be used as collateral in DeFi platforms, enabling property owners to access liquidity or credit in a completely digital, automated environment.

 

• Challenges in Scalability and Security: Despite the promise, the sector faces technical barriers such as wallet recovery risks, data verification issues, and a lack of scalable, secure platforms for large-scale adoption.

 

• Cross-Sector Collaboration Will Be Key: Realizing the full potential of real estate tokenization will require active collaboration between regulators, tech developers, real estate players, and legal experts.

 

Housing.com POV

Real estate tokenization isn’t just a fleeting tech trend—it represents a structural shift in how the world may interact with property ownership and investment in the years to come. While the concept is still in its formative stage in India, its potential to democratize access, enhance liquidity, and streamline traditionally complex transactions is undeniable. However, it would be naïve to overlook the current limitations—regulatory grey zones, technological vulnerabilities, and market hesitancy are real hurdles that must be addressed before tokenization can truly scale.

As India works toward crafting a more definitive legal and operational ecosystem around digital assets, the success of real estate tokenization will depend heavily on collaborative progress between policymakers, technology providers, and real estate stakeholders. Ultimately, tokenization could very well redefine property ownership for a new generation of investors—but for now, it remains a bold vision that demands patience, innovation, and regulatory foresight.

FAQs

Can tokenized real estate assets be inherited like traditional property?

Yes, tokenized real estate assets can be inherited. Ownership transfer can be executed through smart contracts, but legal frameworks and proper estate planning are essential to ensure smooth succession without complications.

What kind of properties can be tokenized in India?

Both residential and commercial properties can be tokenized, provided ownership is clear and legally compliant. Upcoming applications may also include land parcels, rental properties, and co-living spaces, subject to regulatory approvals.

Is income from tokenized real estate taxed differently?

Income from tokenized real estate—like rental yields or capital gains—is taxed under existing income tax laws. However, crypto-related ambiguity may apply if tokens are treated as virtual digital assets under Indian tax regulations.

Do I need to use cryptocurrency to invest in tokenized real estate?

Not necessarily. Some platforms accept fiat currency (INR) and convert it into tokens internally, though others may require stablecoins or cryptocurrencies. The mode of payment depends on the platform’s design and regulatory approvals.

How do tokenized real estate platforms generate revenue?

Platforms typically earn through transaction fees, asset management fees, or secondary market trading commissions. Some may also monetize premium services like property analytics, legal support, or fractional exit facilitation.

Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com