When bricks meet bytes: does tokenisation fill gaps in traditional real estate markets?
Summary
Focus
Real estate is an asset class traditionally characterised by illiquidity and complex transaction processes. To address these challenges, real estate tokenisation platforms operate at the intersection of technology, finance and property markets, leveraging blockchain technology to fractionalise ownership of real estate assets. I use novel data from multiple platforms in the United States to explore whether tokenisation can fill gaps in traditional real estate markets. I investigate the drivers of tokenised real estate development, its interaction with traditional real estate markets and its potential to address liquidity gaps in these markets.
Contribution
I contribute to the literature on financial innovation and tokenisation in four key ways. First, I provide a comprehensive analysis of tokenised real estate, leveraging data from multiple platforms and offering insights into this nascent but rapidly growing market. Second, I identify the traditional real estate market forces – pricing, demand, liquidity and supply – that influence tokenisation and document how these drivers differ from those affecting traditional real estate properties and real estate investment trust (REIT) portfolios. Third, I highlight the role of access to credit, showing that tokenisation tends to develop in areas with fewer credit intermediaries and higher concentration, addressing gaps in access to real estate assets. Finally, I demonstrate that tokenisation can enhance liquidity during periods of stress, such as natural disasters, but this depends on specific institutional backstop features, such as token buyback mechanisms, which involve a trade-off with higher solvency risks for the platform.
Findings
Tokenised real estate properties tend to emerge in areas with lower property prices, weaker demand and less liquidity, suggesting a focus on underserved markets. Regions with limited access to traditional credit exhibit higher adoption of tokenisation, highlighting its potential to bridge financing gaps and facilitate portfolio diversification for retail investors. Tokenisation improves liquidity during exogenous shocks, such as natural disasters, as shown by a significant increase in trading volumes of tokenised properties in affected areas. However, this liquidity advantage relies on platforms providing buyback features, which are associated with higher insolvency risks.
Abstract
Using novel US data from multiple platforms over 2019–25, I show that real estate tokenisation fills gaps in traditional markets. The supply of tokenised real estate is driven by pricing, demand, liquidity and supply in the physical property market. These factors affect the supply of traditional real estate properties and Real Estate Investment Trust (REIT) portfolios differently. Areas with limited access to credit see more rapid growth in tokenised properties, suggesting tokenisation may bridge gaps in access to real estate. Finally, to test whether tokenisation can address liquidity gaps, I analyse trading activity around natural disasters as an exogenous liquidity shock. Trading in tokenised properties rises by 35% cumulatively over the two days following a disaster. This suggests that tokenisation can preserve liquidity when it typically dries up, but only if platforms provide buyback features, which comes with higher insolvency risk.
JEL classification: D02, G12, O33, R31
Keywords: real estate, tokenisation, tokenised real world assets, tokenised housing, liquidity
