Fractional property ownership: New tool to help younger generations own assets

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  Quantumrun Foresight
• November 30, 2021

Tokenization leverages blockchain technology to represent fractional ownership of assets, offering increased liquidity and investment opportunities. However, regulatory ambiguity and unresolved technological challenges hinder its widespread adoption. Despite these hurdles, fractional property ownership has the potential to provide opportunities for social inclusion, and encourage new regulations, job creation, and sustainable practices.

Fractional property ownership context

Tokenization is an emerging process that leverages blockchain technology to represent fractional ownership of assets through digital tokens. These tokens serve as a digital representation of direct possession, whether it be a stake in a real estate investment or a share in a property investment business. Tokenization has the potential to transform real estate transactions by offering increased liquidity, fractional ownership opportunities, and streamlined processes. 

As awareness and comprehension of the digital aspects of real estate, commonly referred to as PropTech, continue to grow, the potential for tokenization to enhance real estate deals and disrupt established corporate entities becomes apparent. However, one significant hurdle is the lack of regulatory clarity. Security regulations vary significantly from one country to another, and they can impact the creation, initial sale, and subsequent trading of tokens in secondary markets. Complicating matters further, as of 2021, there is no globally unified regulatory framework governing tokenized property transactions. This regulatory ambiguity creates uncertainty and limits the seamless integration of tokenization in the real estate industry.

In addition to regulatory challenges, unresolved issues remain, like scalability, interoperability, data privacy, and security. Overcoming these technological challenges is essential to ensure that tokenized real estate transactions become feasible and attractive options for market participants.

Disruptive impact

The commercial property industry has been slow to acknowledge the significance of blockchain-based tokenization and how it may be used to alleviate market distortions. However, momentum is building as this technology, and its applications for real estate transactions become better understood. 

For example, by releasing tokens on the blockchain, homeowners could sell a portion of their property to a large number of small investors. It’s also possible that investors could hold these tokens for fractional rental income, a profit split on capital growth upon sale, or a combination of the two. Such financial agreements may also allow consumers to purchase and sell partial ownership in rental homes without an intermediary, perhaps in a liquid market. Accordingly, a larger number of people may gain access to real estate investing, as well as gain additional options to leverage value from their existing homes without financing or relocation. 

However, it's not only ownership that might be affected. Borrowing could be a possibility as well. It may be feasible to borrow by issuing Non-Fungible Tokens (NFTs) secured by future property owners. Individual investors may then purchase an NFT that represents a portion of the debt. Holders of NFTs would subsequently be paid back in proportion to how much they loaned out over the blockchain.

Implications of fractional property ownership

Wider implications of fractional property ownership may include:

• Reduced need for financial middlemen, such as real estate businesses, due to the formation of a liquid market.


• Lowered incidence of unlawful enterprises due to blockchain usage in the real estate transaction process. 


• Increased social inclusion and affordability by allowing a broader range of individuals to participate in real estate investments, reducing wealth disparities and providing opportunities for asset accumulation among previously excluded groups.


• New investors increasing market liquidity and fostering innovation in the real estate sector. 


• New regulations and legal frameworks to protect investors and ensure fair and transparent transactions.


• Addressing the evolving needs of an aging population by providing flexible investment options, such as smaller and more manageable real estate assets. 


• The development of blockchain-based platforms, smart contracts, and digital asset management systems. 


• New jobs in blockchain development, legal services, investment management, and property maintenance. 


• Sustainable practices in the real estate sector, such as energy-efficient renovations, green building certifications, and the implementation of environmentally friendly technologies. 

Questions to consider

• Would NFTs differentiate much from crowdfunding platforms that enable you to invest in real estate?


• Who do you think would have the authority to collect on a debt if a borrower defaults?