Tokenised Property: Definition and How Real Estate Tokenisation Works
Definition
Tokenised real estate refers to property ownership or economic interest in real estate that has been fractionalised and represented as digital tokens on a distributed ledger (blockchain or similar technology). Each token represents a defined share of the underlying property asset, entitling its holder to a proportion of that asset’s economic returns — typically rental income and capital appreciation — and, depending on the structure, certain governance rights.
The core proposition of real estate tokenisation is the transformation of an illiquid, high-minimum-investment asset class into a form that can be traded in smaller denominations, potentially around the clock, and distributed to a global investor base through digital infrastructure.
The Two Primary Structural Models
Real estate tokenisation in Switzerland and globally typically employs one of two fundamental legal structures:
Direct interest token: The token directly represents a fractional ownership interest or right in the property asset itself, without an intervening SPV. This model is legally complex in most jurisdictions because real property transfer requirements (notarial deeds, land register entries) are not designed for high-frequency token trading. In Switzerland, the Registerwertrecht (ledger-based right) introduced by the DLT Act provides the most viable legal basis for direct interest tokens, though the interaction with land register requirements still requires careful structuring.
SPV-mediated token: More commonly, the property is held by a special purpose vehicle (Zweckgesellschaft) — typically a Swiss Aktiengesellschaft or GmbH — and the tokens represent interests in that SPV rather than in the property directly. Token holders are, in economic terms, shareholders or creditors of the SPV, which in turn holds the property. The SPV collects rental income, pays operating costs, and distributes net income to token holders through the smart contract mechanism. This structure maps more cleanly onto existing Swiss company and securities law, and is the dominant model used by Swiss tokenised real estate platforms.
The Swiss DLT Act: Legal Foundation
Switzerland’s Federal Act on the Adaptation of Federal Law to Developments in Distributed Ledger Technology — the DLT Act — came into force in stages from 2021 and introduced the concept of the Registerwertrecht (ledger-based right). This is a new category of right that exists exclusively on a distributed ledger and whose transfer is legally effective through the ledger mechanism itself, without requiring separate contractual assignment.
The significance for real estate tokenisation is that the Registerwertrecht provides Swiss law recognition for token-based securities representing interests in SPVs or other real estate investment structures. FINMA recognises ledger-based securities as financial instruments subject to the applicable regulatory regime — meaning a token representing a share in a real estate SPV is regulated (for prospectus, disclosure, and distribution purposes) in the same way as the underlying economic interest it represents.
This gives Switzerland a meaningful legal advantage over jurisdictions where the regulatory treatment of tokenised real estate remains ambiguous: structures issued under the Swiss DLT Act have clearly defined legal status, which reduces the legal uncertainty that has deterred institutional adoption in other markets.
The Token Issuance Process
Bringing a tokenised real estate product to market involves several sequential steps:
1. Asset selection and acquisition: A property is identified — typically commercial real estate, given Lex Koller constraints on residential (discussed below) — and acquired or contributed into an SPV.
2. Legal structuring: Specialist legal counsel advises on the optimal structure (direct interest vs SPV token), the SPV’s constitutional documents, the investor rights attached to the tokens, and the regulatory classification of the token (financial instrument requiring prospectus, or other classification). FINMA guidance is typically sought early in this process.
3. Token design and smart contract development: The technical team designs the smart contract — the self-executing computer code — that governs token issuance, transfer, dividend distribution, and investor voting. The smart contract must accurately reflect the legal arrangements agreed between the parties.
4. Smart contract audit: An independent technical auditor reviews the smart contract code to verify that it functions as intended and contains no vulnerabilities or discrepancies relative to the legal documentation. This step is non-negotiable for any credible tokenisation exercise.
5. Investor onboarding and KYC/AML: Prospective token investors complete know-your-customer and anti-money-laundering verification, consistent with the same standards required for conventional securities issuances. In Switzerland, platforms must comply with the Anti-Money Laundering Act (AMLA) and applicable FINMA regulations.
6. Token issuance: Tokens are minted on the designated distributed ledger and distributed to investors in exchange for their investment. The SPV records the token holders as its economic participants.
7. Secondary market listing (where available): Tokens may be listed on a regulated digital securities exchange — most notably the SIX Digital Exchange (SDX) in Switzerland — to provide secondary market liquidity.
Investor Rights
Token holders in a typical SPV-mediated Swiss tokenised real estate structure hold the following rights:
Economic rights: A proportionate share of net rental income, distributed periodically (quarterly or annually) via the smart contract; and a proportionate share of any realised capital gain upon eventual sale of the underlying property.
Governance rights: These vary by structure. Some tokenised real estate products afford token holders voting rights on major decisions (property sale, refinancing, significant capital expenditure); others do not, vesting management decisions exclusively in the SPV management. The extent of governance rights is a material term that investors should examine carefully in offering documentation.
Information rights: Token holders are generally entitled to receive periodic reporting on property performance, financial statements, and material developments affecting the SPV.
Secondary Market Trading
The theoretical liquidity advantage of tokenised real estate — the ability to trade interests at any time on a digital exchange — remains, in practice, more aspirational than actual in the current Swiss market. Secondary market trading of Swiss tokenised real estate tokens is nascent, characterised by:
- Limited daily trading volume
- Wide bid-ask spreads, reflecting thin market depth
- A small pool of market participants (predominantly early adopters and institutional pilot investors)
- Platform dependency: liquidity exists only where a functioning exchange or marketplace is operational
The SIX Digital Exchange (SDX) provides a FINMA-supervised infrastructure for digital securities trading and is the primary candidate for the development of more robust secondary market liquidity as the Swiss tokenised real estate market matures. As the asset base grows and more institutional investors participate, secondary market depth should improve materially.
Regulatory Considerations: Lex Koller
The Lex Koller applies to token holders in tokenised Swiss real estate precisely as it applies to direct property investors. The relevant test is whether the token holder is “acquiring” Swiss residential real estate within the meaning of the Act — and the answer is yes, regardless of the tokenised form of the acquisition.
For residential tokenised real estate: foreign investors (without Swiss citizenship or C-permit) cannot hold tokens representing interests in Swiss residential property without a Lex Koller permit, which is practically unobtainable in most circumstances. This is the most significant constraint on the globalisation of Swiss residential real estate tokenisation.
For commercial tokenised real estate: Lex Koller generally does not apply to commercial property acquisition, meaning tokens representing interests in Swiss commercial real estate (office, logistics, retail) can be marketed to international investors (subject to securities regulations in each target jurisdiction). This is why the pioneering Swiss tokenised real estate transactions — including the BrickMark Bahnhofstrasse deal — have focused on commercial assets.
Advantages vs Traditional Real Estate Funds
| Feature | Tokenised Real Estate | Traditional Listed Fund |
|---|---|---|
| Minimum investment | Low (potentially CHF 1,000+) | Typically one unit (CHF 50–500+) |
| Trading hours | Theoretically 24/7 | Exchange hours only |
| Settlement speed | Minutes (on-chain) | T+2 standard exchange |
| Transparency | On-chain ownership visible | Fund-level disclosure |
| Regulatory clarity | Emerging (DLT Act) | Well-established (CISA) |
| Secondary market depth | Very thin | Moderate (listed funds) |
Current Swiss Market Participants
The Swiss tokenised real estate ecosystem includes BrickMark (commercial property tokenisation), Stableton (alternative assets including real estate), Swiss Real Coin, and several fintech platforms in various stages of development. The SIX Digital Exchange provides the regulated infrastructure layer. Swiss law firms including Lenz & Staehelin, Walder Wyss, and MME Legal have developed specialist DLT practice groups supporting tokenisation transactions.
Donovan Vanderbilt is a contributing editor at ZUG ESTATES, a publication of The Vanderbilt Portfolio AG, Zurich. The information presented is for educational purposes and does not constitute investment advice.