Why real estate tokenisation is more about operational efficiency than liquidity

It is often said that necessity is the mother of invention, and innovations tend to solve problems. If this is the case, then what is the problem that tokenisation in real estate is trying to solve? A superficial glance may lead one to think of liquidity. The narrative is appealing: break large, illiquid assets into smaller digital units and enable easier trading. Yet, on closer inspection, the reality is more nuanced and less transformative than early proponents suggested, particularly when viewed through an institutional investment lens.

While tokenisation is increasingly being explored in real estate, recent research suggests its purpose for institutional investors is often misunderstood. Rather than transforming liquidity in inherently illiquid assets, it is primarily being positioned as a tool to improve operational efficiency, ownership structuring and data transparency. In this sense, it aligns more closely with back-office modernisation than the creation of entirely new markets, offering incremental gains rather than fundamental change.

A report by the World Economic Forum frames tokenisation as an infrastructure upgrade, enabling more efficient issuance, servicing and transfer of assets. This emphasis is echoed in another report by Deloitte, which highlights new fund structures and ownership models rather than liquid secondary markets. The implication is that tokenisation’s immediate value lies in process optimisation, particularly in complex and fragmented asset classes.

Simon Redman, global head of product at real estate fund manager Patrizia, says the persistence of the notion that tokenisation would boost liquidity comes from the fact that fractional ownership makes it easier to buy and sell. “For now, the challenge is that there is not a market for buying and selling – a common exchange of any scale.” His comments underline a key constraint: liquidity is not simply a function of divisibility, but of participation, pricing mechanisms and regulatory clarity.

Having set up tokenised real estate funds, Redman says traditional players such as banks are not interested in becoming market makers because they cannot hedge their positions, creating a liquidity trap where capital must be held on balance sheets at high cost. This discourages the intermediaries that would typically underpin secondary market activity and provide pricing depth.

He also notes that most exchanges and players are set up for traditional trading rather than digital assets, which is another obstacle to developing a truly liquid marketplace. The absence of interoperable platforms and standardised frameworks further fragments the ecosystem and limits the ability to scale solutions across jurisdictions, he adds.

For institutional investors such as pension funds, the primary appeal lies in operational improvements. A 2025 tokenisation survey report by Broadridge points to reduced post-trade inefficiencies as a key benefit. By creating a shared ledger of ownership, tokenisation can reduce friction between intermediaries and streamline settlement processes, limiting reconciliation across fund administrators, custodians and transfer agents.

Redman says it is not particularly hard to tokenise buildings, but it is not the strongest use case, whereas reducing operational and transaction costs is. Similarly, a report by consultancy BDO identified efficiency, transparency and accessibility as the main drivers of adoption. Tokenised structures can automate elements of cap table management, distributions and reporting, potentially lowering administrative costs and improving data consistency. Redman adds that cyber risk is reduced on a distributed ledger because it “cannot be forged” due to decentralisation and consensus validation, among other security measures.

Access to capital is another frequently cited advantage. EY’s 2025 institutional investor digital assets survey found that tokenisation can lower minimum investment thresholds and broaden participation in private markets. For pension funds, this may support more flexible co-investment structures, facilitate capital formation and widen the potential investor base, although it does not necessarily imply more active trading or shorter holding periods.

An academic paper by Rischan Mafrur at Macquarie University highlights low trading volumes, long holding periods and structural barriers to transferability, including regulatory constraints and restricted investor access.

Redman says institutional capital is key for a truly liquid market, but this is still a few years away. “The first priority is operational efficiency, which I think we will see in the next five years,” he says. “The development of a secondary market will take another five years, but other asset classes, not property, will lead the way.”

Regulators have reached similar conclusions. An International Organization of Securities Commissions report, notes that adoption remains at an early stage and that efficiency gains are uneven. It also emphasises that many tokenised assets still rely on traditional legal and market infrastructures, limiting transformation and reinforcing the hybrid nature of current systems.

Not a liquidity panacea

Still, market forecasts remain ambitious. Deloitte estimates tokenised real estate funds could reach US$1trn (€850m) by 2035, while Broadridge projects between US$10trn and US$16trn in tokenised assets by 2030. Yet the current market size is still relatively small, with real estate representing a modest share of total tokenised real-world assets.

This gap reflects the structural characteristics of the asset class. Real estate transactions depend on legal processes, valuation cycles and regulatory oversight, none of which are materially accelerated by tokenisation. The technology does not remove intermediaries but reduces duplication and friction, while settlement efficiencies are constrained by the underlying asset and the pace of external processes, Redman says.

For long-term investors, the implications are incremental rather than transformative. Tokenisation might improve efficiency, enhance transparency and support more flexible structures, but it does not fundamentally alter the illiquid nature of the asset class or its long-term investment profile. As a result, institutional adoption is likely to be driven less by expectations of liquidity and more by the gradual integration of digital infrastructure into existing processes.