Property Tokenisation:
New Avenues to Financing and Marketing

How can invest­ments in the prop­er­ty sector become more attrac­tive during an econom­ic down­turn, there­by also boost­ing marketing?

One way to achieve this is through tokeni­sa­tion, i.e. the repre­sen­ta­tion of prop­er­ty assets in the form of digi­tal units, secured on a blockchain. This rela­tive­ly new tech­nol­o­gy forms the basis for a range of attrac­tive invest­ment oppor­tu­ni­ties – and is the subject of this Valdivia Expert Tip. First, we take a look at its market signif­i­cance and explain the key gener­al bene­fits. The focus then shifts to the prac­ti­cal use of tokeni­sa­tion as a market­ing tool in the prop­er­ty sector.

Grow­ing impor­tance in the market

The tokeni­sa­tion of real estate has long since arrived in the indus­try. Accord­ing to a survey, as early as 2023, 12 per cent of 750 large compa­nies were already using real estate tokeni­sa­tion¹ . A further 20 per cent had begun imple­men­ta­tion, 26 per cent were test­ing pilot projects and 29 per cent had at least expressed an interest.

The signif­i­cance of this tech­nol­o­gy is also under­lined by growth fore­casts. By 2030, real estate is expect­ed to account for around 30 per cent of the total market for tokenised real-world assets (RWA) and grow to approx­i­mate­ly 3 tril­lion US dollars² . Among experts, the tokeni­sa­tion of real estate is thus regard­ed as one of the most impor­tant drivers of blockchain tech­nol­o­gy – with increas­ing accep­tance and signif­i­cant growth in the coming years.

Advan­tages of tokenisation

Tokens are digi­tal units that repre­sent owner­ship or usage rights to assets on a blockchain. Depend­ing on their struc­ture, they can be fungi­ble or non-fungi­ble (NFT). A non-fungi­ble token (NFT) is a unique digi­tal certifi­cate that certi­fies owner­ship of objects such as real estate on a blockchain in a forgery-proof manner.

Tokeni­sa­tion – i.e. the repre­sen­ta­tion of prop­er­ty value as a token – thus offers a number of specif­ic advan­tages for the financ­ing and invest­ment sectors. This allows illiq­uid assets to be trad­ed more effi­cient­ly – even direct­ly with­out tradi­tion­al inter­me­di­aries. Further­more, tokeni­sa­tion allows assets to be divid­ed into market-appro­pri­ate units, there­by appeal­ing to new target groups. Not to be confused, but combin­able, are tokeni­sa­tion and encryp­tion, which fulfil differ­ent func­tions: whilst tokeni­sa­tion struc­tures assets, encryp­tion protects sensi­tive data, partic­u­lar­ly during transmission.

Prop­er­ty as a digi­tal asset 

A digi­tal, NFT-based value system enables the prop­er­ty sector to adopt new, flex­i­ble ways of present­ing and market­ing assets:

• Frac­tion­al Ownership
  Tokenised real estate can be struc­tured in the form of digi­tal shares. This allows even small­er insti­tu­tion­al and private investors to acquire shares in attrac­tive, large-scale real estate invest­ments, signif­i­cant­ly broad­en­ing the pool of poten­tial investors.
• Port­fo­lio transparency
  Blockchain tech­nol­o­gy guar­an­tees trans­par­ent, tamper-proof trans­ac­tions. This builds trust and enhances market­ing, as investors can access infor­ma­tion and track trans­ac­tions more easily.
• Secondary markets, direct trading
  The NFT-based infra­struc­ture creates liquid markets in which shares can be trad­ed more easi­ly and with poten­tial­ly lower trans­ac­tion fees.
• Flex­i­bil­i­ty and innovation
  Tokeni­sa­tion supports inno­v­a­tive financ­ing models, such as crowd invest­ing or hybrid forms of financ­ing. This can make the market­ing of prop­er­ty projects more attrac­tive and appeal to new target groups.

New areas of growth

In a recent study, the Deloitte Centre for Finan­cial Services³fore­casts that by 2035, real estate worth US$4 tril­lion will be tokenised world­wide, compared to just under US$0.3 tril­lion in 2024. This corre­sponds to an aver­age annu­al growth rate of 27 per cent, primar­i­ly across three poten­tial growth areas:

• Private real estate funds
  Indi­vid­ual and inter­con­nect­ed blockchain-based plat­forms offer effi­cient ways to manage the issuance of tokenised equi­ty shares by limit­ed part­ners, asset manage­ment and trad­ing on secondary markets, there­by reduc­ing inter­me­di­ary costs. Further­more, insti­tu­tion­al investors can use tokenised real estate assets to create bespoke port­fo­lios or high­ly person­alise offerings.
• Owner­ship of loans and securitisations
  Compared to tradi­tion­al mort­gage-backed secu­ri­ties, a token-based value system offers investors a number of addi­tion­al bene­fits – such as near real-time data report­ing, liquid­i­ty on exchanges, improved trace­abil­i­ty and perfor­mance report­ing, as well as cost savings in lend­ing, pool­ing and securitisation.
• Owner­ship of build­ing land or projects under construction
  In addi­tion to frac­tion­al owner­ship of exist­ing build­ings, there is current­ly grow­ing inter­est in the tokeni­sa­tion of projects in the plan­ning stage or under construc­tion. This is because financ­ing require­ments in ongo­ing projects can change over time – for exam­ple, due to tech­no­log­i­cal improve­ments or changes in legal regu­la­tions. Tokeni­sa­tion offers an advan­tage here, as it enables flex­i­ble capi­tal rais­ing through debt, equi­ty and hybrid financ­ing via inte­grat­ed platforms.

Guid­ance on prac­ti­cal implementation

In addi­tion to the oppor­tu­ni­ties offered by tokeni­sa­tion, the Deloitte study also outlines sever­al points that asset managers and investors in the prop­er­ty sector should bear in mind:

• As NFTs are stored on a blockchain, choos­ing the most suit­able infra­struc­ture is crucial. Factors to consid­er include tech­ni­cal perfor­mance, scal­a­bil­i­ty, secu­ri­ty and service options. Special­ists should there­fore be consult­ed when select­ing a blockchain.
• Tokeni­sa­tion signif­i­cant­ly enhances data secu­ri­ty, but cannot offer absolute protec­tion. Phys­i­cal­ly sepa­rate stor­age of orig­i­nal data and tokens is there­fore recommended.
• The tax and account­ing treat­ment of digi­tal tokens may differ from that of non-tokenised coun­ter­parts. Here too, expert advice is advisable.
• Tokenised assets expand liquid­i­ty and flex­i­bil­i­ty options with­in a port­fo­lio, but should not replace the entire investment.

In addi­tion, gener­al chal­lenges must be taken into account, such as regu­la­to­ry hurdles or the task of rais­ing aware­ness of the new tech­nol­o­gy and build­ing trust in it among poten­tial investors.

Conclu­sion

Tokeni­sa­tion offers new oppor­tu­ni­ties for the market­ing and trad­ing of real estate, projects and their financ­ing solu­tions. At the same time, it is evolv­ing from a tech­no­log­i­cal concept into a strate­gic tool. It opens up new avenues for investors and funda­men­tal­ly trans­forms the manage­ment of real estate assets – towards greater flex­i­bil­i­ty, trans­paren­cy and speed. For real estate compa­nies, the key lever there­fore lies in their target­ed inte­gra­tion into exist­ing busi­ness models and sales strategies.

Well-planned imple­men­ta­tion is crucial: tokeni­sa­tion only realis­es its added value when embed­ded in clear invest­ment logic and suit­able plat­form struc­tures. To this end, the tech­nol­o­gy – which is still rela­tive­ly unknown – requires clear commu­ni­ca­tion, a compelling pitch to investors and tech­ni­cal­ly sound imple­men­ta­tion. Those who estab­lish this at an early stage will tap into new sources of financ­ing and secure compet­i­tive advan­tages even today.

Sources

1. “2024 Commer­cial Real Estate Outlook: Find­ing Terra Firma”, Deloitte, Septem­ber 2023
2. “Fore­cast­ed market size of real-world asset tokeni­sa­tion in sever­al indus­tries, includ­ing real estate, from 2023 to 2030”, Roland Berg­er, Octo­ber 2023
3. “FSI Predic­tions 2025 – Emerg­ing devel­op­ments and trends in the finan­cial services indus­try”, Deloitte Finan­cial Services, 2024

(Image source: istockphotos.com)