Real estate tokenisation | How it works in the UAE: Key considerations and risks

Real estate tokenisation is gaining prominence within property and financial markets, with the potential to alter how real estate assets are bought, sold and financed.

Although still relatively new, jurisdictions such as the UAE are actively positioning themselves as early adopters. Continued government initiatives and regulatory development are reinforcing the UAE’s position as a centre for digital asset activity. 

In this context, it is becoming increasingly important for investors, developers and asset managers to understand both the mechanics of tokenisation and the associated legal and regulatory considerations, as the market is expected to see further growth.

What is real estate tokenisation?

Real estate tokenisation involves dividing ownership rights or economic interests in a property into smaller units which are represented by digital tokens issued on a blockchain.

Each token typically reflects a fractional interest in the asset or in the entity that owns it, enabling multiple investors to hold economic stakes in a property that would otherwise require significant capital to access.

How tokenisation works in practice

Although structures can vary, most tokenised real estate projects follow a broadly similar process:

1.    Asset structuring: 

A property is typically held through a special purpose vehicle, often incorporated in a financial free zone or other suitable jurisdiction. Investors do not usually hold the real estate title directly, they acquire tokens linked to shares or economic rights in the SPV.

2.    Token creation: 

The ownership interests in the SPV are digitised into tokens and minted on a blockchain platform with each token representing a predefined fraction of the investment. The rights attached to these tokens may include: 

    a.    entitlement to rental income;
    b.    profit participation on sale; or 
    c.    voting or governance rights. 

3.    Offering to investors

Tokens are then issued to investors through a private placement or, where permitted, a broader offering. This stage is often subject to securities laws, meaning that regulatory approvals or exemptions must be carefully considered.

4.    Management and income distribution

The property is managed in the usual way, with operational responsibilities remaining with the sponsor or asset manager. Rental income (if applicable) is distributed to token holders in accordance with their holdings.

5.    Secondary transfers

One of the key perceived advantages of tokenisation is the ability to facilitate transfers of ownership interests more easily. Depending on the regulatory framework, token holders may be able to sell their tokens on licensed platforms or to other investors.

Key legal and regulatory considerations in the UAE

The UAE has taken a progressive approach to digital assets and blockchain-based transactions, but real estate tokenisation sits at the intersection of several regulatory regimes.

1.    Securities regulation

Tokenised interests may constitute securities under UAE law, particularly where they provide profit rights or are marketed as investments.

This means that token issuances may require:

• Licensing or approval
• Compliance with prospectus or offering rules
• Restrictions on marketing and investor types

2.    Regulatory framework

Real estate tokenisation in the UAE operates across a three-layer regulatory framework, comprising:

• Property and title laws (including onshore regimes and Dubai Land Department requirements)
• Securities laws (including CMA, DFSA and FSRA frameworks)
• Virtual asset laws (including VARA and the ADGM FSRA crypto asset regime)

Within this structure, Dubai and Abu Dhabi have introduced specific frameworks for virtual assets, including licensing requirements for platforms dealing in digital tokens. For example:

• Dubai’s VARA regulates virtual asset service providers in the emirate
• ADGM has established a comprehensive regime for digital assets and exchanges

In Dubai, whether a real estate token falls within VARA’s remit depends on its legal and economic characteristics. Tokens that are transferable, tradeable or used as investment instruments may qualify as “virtual assets”, triggering licensing requirements for virtual asset service providers. However, where tokens constitute securities or units in a collective investment structure, they may instead fall within securities frameworks (e.g. DFSA/FSRA). As a result, many tokenisation structures require careful regulatory mapping across multiple authorities.

The Dubai Land Department has also been advancing digitisation in property transactions, including blockchain-based initiatives aimed at improving transparency, efficiency and investor access. Tokenisation aligns with these objectives, particularly in enabling fractional ownership models and expanding participation in the real estate market.

3.   AML and compliance obligations

Tokenisation platforms and issuers must comply with UAE anti-money laundering and counter-terrorist financing laws.

4.   Benefits and practical advantages

When properly structured, real estate tokenisation in the UAE offers a number of potential benefits:

• Enhanced access for international investors into Dubai’s real estate market
• Alignment with the UAE’s broader capital markets development strategy and digital economy agenda
• Potential to increase liquidity in an otherwise relatively illiquid real estate market in the region

Dispute risks in real estate tokenisation

The potential opportunities arising out of real estate tokenisation are endless and exciting. However, we would not be doing our job if we did not also highlight the potential risks.

Real estate tokenisation is often characterised as a frictionless evolution of property ownership, but from a disputes perspective, like with other emerging technologies, it introduces novel and potentially more complex layers of legal uncertainty. Traditional real estate disputes tend to centre on tangible rights: title defects, boundary issues, leasing obligations, or financing arrangements. Tokenisation, by contrast, fractures these interests into digital representations that may sit across multiple jurisdictions and legal regimes. This raises a fundamental question: when a dispute arises, is it a matter of property law, contract law, securities regulation, or even technology governance? The answer is rarely straightforward, and litigants may find themselves navigating an overlapping and sometimes conflicting web of legal frameworks.

A particularly contentious issue is the enforceability of rights embedded in smart contracts. While tokenisation platforms often portray smart contracts as self-executing and therefore resistant to disputes, the reality is that these arrangements are still subject to traditional legal scrutiny. Errors in code, ambiguous drafting, or unforeseen circumstances can trigger disputes which courts or arbitral tribunals then need to grapple with. The challenge is that most legal systems are not yet fully aligned on how to treat code-based obligations – whether they should be interpreted strictly as written, or in light of the parties’ broader commercial intentions. This tension creates fertile ground for disputes, especially in cross-border tokenised offerings where governing law and jurisdiction clauses may themselves be contested. 

Another emerging area of dispute relates to investor rights and governance. Tokenisation enables fractional ownership at scale, often involving large numbers of retail participants who may have limited visibility over the underlying asset or decision-making processes. Disagreements may arise over voting mechanisms, asset management decisions, or the distribution of returns, particularly where the governance model is encoded in platform rules rather than traditional corporate structures. Minority investors, in particular, may find it difficult to assert their rights or coordinate collection action, leading to novel forms of shareholder – or more accurately, token holder - litigation.

Insolvency scenarios also introduce significant complexity. Where a tokenisation platform, special purpose vehicle, or asset manager becomes insolvent, questions arise as to whether token holders have a direct proprietary interest in the underlying real estate or merely a contractual claim against an intermediary. The answer can vary markedly depending on the structuring of the tokenisation and the applicable law. This uncertainty may lead to disputes between token holders, secured creditors, and insolvency practitioners, particularly where the asset and the token issuer are located in different jurisdictions. 

Finally, evidentiary issues should not be overlooked. While blockchain records are often described as immutable, disputes may still arise over the interpretation, authenticity, or completeness of on-chain data – especially when coupled with off-chain agreements or side arrangements. Courts and arbitral tribunals are still developing their approach to digital evidence of this nature, and we as practitioners must be prepared to bridge the gap between technical systems and legal standard of proof. In this sense, tokenisation does not eliminate disputes; rather, it reconfigures them, demanding a new blend of legal, technical, and strategic expertise. 

Conclusion

As regulatory frameworks in the UAE continue to mature, real estate tokenisation is likely to evolve from pilot structures into more institutionalised offerings. A key area to watch will be the development of regulated secondary markets for tokenised assets and greater regulatory clarity on the classification of tokenised real-world assets. Coordination between authorities such as VARA, the DLD and financial free zone regulators will be essential in enabling scalable adoption.

For investors and sponsors alike, obtaining appropriate legal advice at an early stage is essential to ensure that tokenisation structures are both compliant and commercially viable.