Deloitte envisions the surge of tokenized real estate assets up from $300 billion in 2024 to about $4 trillion over the ten-year time.
The Deloitte Centre for Financial Services released its predictions for the global market for commercial real estate tokenization, which is expected to grow rapidly over the next decade.
The potential for the market is huge, with an estimated compound annual growth rate (CAGR) of more than 27% over the forecast period. Deloitte experts believe that asset tokenization could significantly democratise real estate in the next few years.
With the help of blockchain, this technology turns real estate into small digital tokens that people can buy, sell, or fractionally own. This easy online process could open up new markets and products, and help real estate companies solve existing problems like high costs, slow processes, and limited access for small investors.
The expected $4 trillion in market value can be reached by 2035 through different avenues of tokenization. This includes tokenized private real estate funds, which are expected to reach a value of $1 trillion at an 8.5% market penetration rate, tokenized loans and securitizations, that could grow to $2.39 trillion, with a 0.55% market penetration rate, and tokenized ownership of undeveloped land and projects under construction, projected to reach $501 billion, with a 0.80% market penetration. Mortgage-backed securities and real estate investment trusts shall remain minor tokenization sources, bringing $57 billion and $17 billion in market value, respectively.
As for innovations, not only can existing real estate funds get tokenized, but also entities may use decentralized lending protocols, where lenders group loans together and sell them to a special-purpose vehicle (SPV), which, in turn, creates and sells debt tokens backed by the value of those loans. Besides, new funds can be issued directly “on-chain” based on real estate trust deeds – agreements between borrowers and lenders.
With tokenization, institutional investors can create custom portfolios with tokens that match their investment strategies and needs. For example, one can choose a property based on its sustainability rating or proximity to certain locations.
The tool also offers added benefits such as faster, near real-time data reporting, improved liquidity through exchange trading, better traceability of assets, and enhanced performance tracking compared to traditional mortgage-backed securities (MBS). Furthermore, it creates numerous opportunities for bridging traditional finance with digital innovation and crypto ecosystem.
However, due to the nascent nature of the market, investors might still have doubts regarding the scenario when a fund goes into default. Questions arise if the lender can take ownership of the real asset, not just its digital version on the blockchain, in such a case. If there were more clarity regarding such controversies, the new asset class would get wider adoption sooner. However, adding built-in rules to digital tokens and connecting them to real assets could help automate compliance, capital requests, and payouts in the tokenized real estate market, creating a much smoother and more efficient way to manage such funds and resolve linked issues.
