Tokenised real estate accelerates with ‘green lightʼ from Dubai regulator

The United Arab Emirates (UAE)’s tokenised real estate sector has received a boost from Dubai’s Virtual Assets Regulatory Authority (VARA). The Dubai regulator is partnering with blockchain infrastructure giant Ripple and government-owned entity Dubai Land Department (DLD) to bring its Real Estate Tokenization Project onto Ripple’s XRP Ledger (XRPL), it said in a statement on July 15.

Meanwhile, the other two strategic partners in the project — Prypco Mint and Ctrl Alt — were authorised by VARA as a broker-dealer and broker-dealer issuer in May. Both firms participated in the pilot phase of DLD’s tokenised real estate sandbox, alongside the UAE-based Zand Digital Bank.

“This is the first time that a title deed is tokenised. We transform a physical asset — which is real estate — into digital tokens. People can own shares and fractions of property, getting to benefit from rate of return, capital appreciation in a liquid way on blockchain,” said Dr Mahmoud AlBurai, DLD director of real estate policies and innovation, in an interview explaining the sandbox.

According to Deloitte, the global real estate tokenisation market is expected to reach $4 trillion by 2035.

‘Minimum risksʼ

Prypco Mint now offers licensed real estate tokens, with its most recent property released on July 22. Tokenisation of real estate allows “fractional ownership” of properties, making alternative investments more accessible, the firm said in an announcement on its website.

Although the group claimed its tokens would provide a net annual return on investment (ROI) of 8–12% with investments starting from Dh2,000 ($545), it also noted that the returns are “projections and not indicative of any future, past, or guaranteed performance”.

Currently, Prypco Mintʼs financial instruments are only available to UAE ID holders aged 18 or over.

AlBurai at DLD said it aims to “keep the risk to a minimum” in the initial phase, with offerings limited to ready-to-go properties with income-producing capabilities.

“Prypco collects rent on behalf of token holders. They will pay all the expenses deducted from revenues and distribute them back to everyone,” he said, describing this as good governance on the part of DLD, VARA and the central bank.

“When we launched it, we had around 3,000 people interested and now we are [conducting] the know-your-customer (KYC) processes. Most of them never invested in Dubaiʼs real estate market before.” This indicated “the democratisation of real estate investment in Dubai”, he said.

Consumer protection

Prypco Mint says it is compliant with VARA’s Client Money Rules, which require UAE client accounts to be maintained with third-party banks in the UAE. According to the platform, customer funds are “safeguarded” through a property token ownership certificate issued by the DLD. The certificate is unique to each investor and includes their name.

The proof of ownership is officially recorded as “tokenholder” — along with the TokenID — on the DLD’s REST application and the Prypco platform. Each investor will have their tokens securely stored in a regulated custodial wallet, said Prypco Mint.

For uninvested funds in the Prypco Wallet, any such funds are held in a “separate client money account” with Zand Bank, in compliance with the client funds’ segregation rules.

Liquidity warnings

In addition, the VARA rulebook prohibits any other use of customer funds, particularly for accounting purposes. Prypco Mint is not permitted to use client assets for liquidity, capital ratios or its own balance sheet.

The firm must have systems in place to ensure “no off-setting” or debit balances occur in customer accounts. It also must not use customer funds belonging to one client to satisfy obligations owed to another client or any other entity.

However, Prypco Mint also warned in its terms and conditions: “Virtual assets may lack liquidity, meaning that it may not always be possible to sell, trade, or exchange virtual assets in a timely manner or at a fair market price. Virtual assets may not benefit from the same legal protections afforded to traditional financial instruments or bank deposits.”

Real estate funds are generally considered “inherently illiquid assets” in the UK, according to a Financial Conduct Authority (FCA) consultation paper from 2019. Three of the UK’s largest property funds froze £9.1 billion in assets in 2016, after Britain voted to leave the EU.