Why Real Estate Tokenization Isn't Working Yet

MANTRA, a Layer-1 blockchain platform for tokenized real-world assets and DAMAC Group, a leading UAE real estate developer, have announced a $1B deal to tokenize DAMAC’s portfolio of real estate, hospitality and data centres by early 2025.

But this highlights a major problem with real estate tokenization: without direct integration to Dubai’s land registry system these tokens will be fancy digital certificates but ultimately illiquid. MANTRA/DAMAC can get regulatory approval to list this on Binance, but true market validity and institutional liquidity require a connection to the underlying land records.

The industry needs a standardised framework to connect blockchain platforms to land registries - essentially a “SWIFT for real estate” that can verify and settle property transactions in real-time. Dubai Land Department’s blockchain initiatives are leading this charge, with infrastructure development underway to connect global buyers to UAE properties. Big announcements are expected to be made at Token 2049 in Dubai.

Beyond regulatory approval, success in this market requires deep liquidity from the big institutional players. Sovereign wealth funds, pension systems and large institutions need a trusted framework before they will participate. Without this bridge between traditional finance and blockchain technology, the tokenization of real estate assets will create more digital certificates than actively traded securities.

As someone who's been at the forefront of RWA tokenization projects, I can tell you the stats show a clear trend (according to Superstate): The U.S. is ahead of the pack with 34.8% of global tokenization efforts, with Germany (11.4%), Switzerland (9%), and Singapore (8.5%) following behind.

But these numbers don't tell the whole story. I've seen firsthand that no country has put all the pieces in place for digital property markets to work. Even in the U.S., which leads in new projects, most tokenized properties struggle with the same liquidity issues I've noticed worldwide.

The Four Pillars of Real Estate's Digital Future

Based on my work with regulators and developers in Asia and the Middle East, I've pinpointed three key factors for immediate success, plus one more to scale up:

1. Market Makers: Professional groups that provide high-quality liquidity for property deals worth millions. This means committed financial institutions with enough money to handle big transactions, keep reliable bid-ask spreads and keep the market running non-stop.
2. Standardized Infrastructure: We need more than just basic trading tools. We need strong systems to settle trades, standard ways to price things, and universal rules for trading. This includes standard APIs, ways to settle trades across borders, and smooth connections with both old-school and new digital money systems.
3. Legal Framework: My talks with regulators show we need complete frameworks that treat digital property rights as top priorities. This means clear rules on issuing tokens, ownership rights, secondary trading, and transactions across borders.
4. Digital Land Registries (The Scale Factor): While not vital right away for market function, this becomes key to reaching stock market-like speed. A land registry on blockchain lays the groundwork for countless future breakthroughs in managing property, financing, and automation.

The Current Reality and Scale of Transformation

The World Economic Forum believes the tokenization market could be worth $867 trillion and has the potential to shake up every type of financial asset. Real estate, the biggest asset class worldwide, is at the center of this change. Larry Fink from BlackRock points out that we're heading towards "Tokenization of Every Financial Asset."

The similarities are clear: Real estate tokenization, like self-driving cars, isn't a question of if but when the key parts fall into place. Just as most people didn't get how ChatGPT would change what we thought AI could do overnight, the real estate industry is getting close to a big turning point.

I've seen this change start in specific places:

• Switzerland's strong trading setup
• ADGM's forward-thinking rules
• Georgia's groundbreaking digital land registry

But we've also witnessed big flops that show system-wide holes:

• Fluidity and Propellr's $20 million ICO crash
• Harbor's huge dorm tokenization flop even with VC money
• Out of dozens of 2023 projects I've watched, less than 10% got real trading action

The SWIFT Comparison

Here's what we've learned: Real estate tokenization needs its own standard for working together, just like big banks use SWIFT for worldwide money transfers. Right now, we see closed trading systems showing what's possible. El Salvador's approach gives us a glimpse of what can happen in controlled setups. They're allowing platforms to create REIT-like trading environments where deals finish in 60 seconds.

These closed systems are similar to individual banks before SWIFT — they work well on their own but can't connect. We'll see many such platforms pop up, each operating where they're allowed. But the industry will take off when we have a "SWIFT for Real Estate" that sets universal rules between governments built into smart contracts connected to the land registry.

The Way Forward

Just like how few people could guess the effect of smartphones in 2007 or AI helpers in 2022, we're now on the brink of a big shift in real estate. The size of the upcoming change - a market worth $360 trillion — isn't just about making deals digital; it's about rethinking how we own, sell, and price property worldwide.

This big change is happening step by step:

• First, closed systems prove the main technology works
• Then, new rules allow for controlled new ideas
• Next, efforts to make everything work together to connect these separate areas
• Last, a system like SWIFT lets people trade property connected to a land registry

The real estate shakeup isn't on its way—it's already kicking off in these closed systems. But we'll see its full power when we link them up, building a worldwide connected property market.

We've got a roadmap on how SWIFT changed banking. Now it's time for real estate to step up, and the big changes coming will shock even those who see the glass as half full.

Joshua Johnson is a co-founder of LiquidHectare.com and veteran blockchain speaker who has led multiple tokenization initiatives.