Introduction
The United Arab Emirates (UAE) is leading the real estate market revolution through the tokenization of property assets and the adoption of a reliable fractional ownership model. Earlier, property ownership was generally available only to high-net-worth investors, but with proptech in the UAE, real estate projects are now divided into digital tokens, each representing a fractional interest in a property, thus revolutionizing the real estate market.
In 2025, Dubai’s first tokenized property transaction was completed within a few hours. It was sold in less than 24 hours and was able to attract 224 investors from 40 different countries, with each investor putting in an average of AED 10,714, thereby showing the global investors’ enthusiasm towards this business model.
With various authorities such as VARA, DLD, SCA, DIFC, and ADGM overseeing aspects of virtual assets, securities, and property law, the UAE's rules and regulations are complex but promising for developers and investors willing to explore this new digital frontier.
What Is Real Estate Tokenization and Fractional Ownership in UAE?
It is estimated that real estate assets digitally tokenized in Dubai will be worth up to AED 60 billion by 2033, which is almost 7% of the total property market.
This makes it essential to understand fractional ownership and real estate tokenization, two concepts that are different but closely related and aim to make property investment more accessible, liquid, and programmable.
Real Estate Tokenisation in UAE
Tokenization is the conversion of ownership or economic rights in a real estate asset into digital tokens recorded on a blockchain. Each token represents one of the many fractional ownership interests in the property, allowing multiple investors to have a collective interest in a single asset.
Since every transaction is recorded on the blockchain, it is a system immune to tampering, open, and secure, which in turn helps cut down on fraud and reduce the need for intermediaries.
Types of Rights Represented in Real Estate Tokenization in UAE:
- It represents the legal ownership directly linked to the property title.
- It indicates beneficial ownership through a Special Purpose Vehicle (SPV) that holds the property.
- They may serve as a symbol of contractual rights to income, rent, or capital gains.
Crucial Note: The ownership and transactions are conducted through the use of smart contracts (digital agreements).
Fractional Ownership in UAE
Fractional ownership is when several people share the ownership of a property, instead of just one person. It is done using tokens or certificates so that each owner has a certain amount of the property’s value.
From the developer’s point of view:
- With this, developers can raise capital quickly by dividing a land sale into smaller portions rather than waiting for a single big buyer to come along.
- It enables them to find more small- and medium-sized investors, thereby increasing market liquidity.
- It reduces financial risk and speeds up project development, as funding comes from multiple contributors.
- They can advertise luxury or commercial spaces at cheap entry levels, thus making their projects more accessible.
From the investor’s point of view:
- Investors are allowed to have a share in high-value real estate, such as a villa, without the need for full ownership capital.
- It opens the door to an additional source of income through renting or profit-sharing.
- The initial investment is significantly less; in some cases, it could be as low as AED 2,000.
- Investors can diversify their portfolios by holding small stakes in several properties.
Simply put, developers get easier access to funding, while investors get affordable access to top-tier real estate, both sharing the benefits of ownership, income, and appreciation.
Smart Contracts in Real Estate Tokenization in UAE
Smart contracts are self-executing contracts that do not require traditional paperwork hassle through which the essential processes are automatically carried out, for instance, rent distribution, giving the right to use the property, and checking compliance; thus, they are very accurate and efficient.
What Legal and Regulatory Frameworks Govern Real Estate Tokenization and Fractional Ownership in the UAE?
Real estate tokenization and fractional ownership in the UAE are governed by a comprehensive multi-regulatory framework that fuses not only real estate but also financial oversight. The following are the regulations in force:
- The Dubai Land Department (DLD) is at the core of this framework and has a major influence on both recording and acknowledging property ownership. The DLD has been the first to merge blockchain technology with real estate via such endeavors as the Real Estate Evolution System (REES) and the Property Tokens Program.
- The Virtual Assets Regulatory Authority (VARA), is the primary regulator of virtual assets, including tokenized real estate in Dubai. VARA’s framework sets the rules for the licensing, compliance, and operation of tokenization platforms, ensuring that tokenized property investment offers meet standards for investor protection, comply with anti-money laundering (AML) regulations, and meet cybersecurity requirements.
Important: Developers and token issuers need to have the proper VARA license in place before they can provide any real estate-backed digital assets. If one is found to be operating without authorization, it may be subject to regulatory fines, and the contracts with investors may become void.
- The federal-level supervisory body for the financial markets in the UAE is the Securities and Commodities Authority (SCA), which is also responsible for tokenized assets. The SCA ensures that these asset offerings comply with national financial market regulations and that issuers hold the necessary licenses to conduct token-based investment activities.
- Free-zone areas such as Abu Dhabi Global Market (ADGM) are under the regulation of the Financial Services Regulatory Authority (FSRA), and Dubai International Financial Centre (DIFC), regulated by the Dubai Financial Services Authority (DFSA), offers specialized regimes for digital securities, SPVs, and crowdfunding structures.
- Moreover, the Central Bank of the UAE oversees the entire financial system and is primarily concerned with AML and CFT compliance in the context of digital asset transactions.
Important: As an investor, ensure the real estate property is properly registered and valued by certified professionals in accordance with DLD standards before proceeding with property tokenisation.
Crucial Note: Inaccuracies in property papers may cause the tokens to be invalidated, and thus, investors will lose their rights.
How Should Developers Ensure Legal and Regulatory Compliance in the UAE for Tokenization Platforms?
Real estate tokenization platforms in the UAE need to adhere to several essential legal requirements to secure regulatory stability, investor protection, and operational transparency.
- Initially, a Special Purpose Vehicle (SPV) is required to be set up under the UAE law to be the owner of the property that is being tokenised. The investors are given tokens that represent their ownership or share in this SPV, which is how digital tokens are linked to tangible assets.
- Secondly, it is necessary to hold a license. Issuers should be granted approval by the relevant regulator, depending on the area, such as the Virtual Assets Regulatory Authority, Securities and Commodities Authority (SCA) onshore, or the DFSA and FSRA in the DIFC and ADGM free zones, respectively.
- To comply with financial regulations, tokenization platforms must have robust anti-money laundering (AML) and know-your-customer (KYC) procedures in place to verify investor identity and the source of funds.
- They must also maintain strong custody and cybersecurity standards, including secure token storage, regular independent audits, and clear risk management procedures.
- Lastly, the provisions for solving disagreements should be explicitly outlined in the agreements, with arbitration or litigation usually under DIFC or ADGM jurisdictions, to give legal certainty and enforceability.
Important: Real estate developers and investors are required to be very careful to have their VAT registration in order before they can proceed with any property transaction.
Crucial Point: Besides the VAT that will be charged, the DLD Transfer Fee, Document Issuance Fee(s), and the relevant service charges payable at the time of registration or resale of the property may also be other payments.
Conclusion
Dubai’s real estate tokenisation project is still in its early stages, and the rules are developing as regulators test how digital ownership will work. There is progress, but also uncertainty around investor eligibility, secondary-market trading, and how smart contracts fit within UAE property law. This makes proper legal structuring important for anyone planning a tokenised real estate project.
At Kayrouz and Associates, established in 2006 and led by Partner Pierra Kayrouz with 24 years of experience, our expert real estate team draws on strong capability across real estate development advisory, investment structures, regulatory compliance, and dispute resolution, with growing work in real estate tokenisation and the proptech space in the UAE. We advise clients on:
- Regulatory compliance with Dubai’s tokenisation rules and AML/KYC standards
- Drafting, reviewing and evaluating smart contracts used in tokenised real estate transactions
- Due diligence and risk mitigation for tokenised real estate
- Legal pathways for developers and individual investors
- Escrow services for tokenised sales in AED, USD and EUR
- Crypto to fiat conversion support through licensed entities
- Investment protection and dispute resolution for tokenised assets
Frequently Asked Questions
Are Foreign Investors Allowed to Buy Tokenized Real Estate in Dubai?
No. Foreign investors are not allowed to buy tokenized real estate in Dubai. Under current law, individuals of other nationalities aged 18 or older who possess an Emirates ID can invest in tokenized real estate projects in Dubai. However, for future development, the regulation may allow investors without IDs as well.
What Are the Benefits of Real Estate Tokenization?
There are several benefits of real estate tokenization, such as enabling small investors to hold shares in expensive properties, as investment amounts can be minimal. The tokenization of real estate property is done using blockchain, which keeps ownership records clear and resistant to fraud. Also, it saves the real estate industry from traditional paperwork and middleman costs by leveraging automation and global reach.
How is Fractional Real Estate Ownership Taxed in the UAE?
Fractional real estate ownership in the UAE offers a tax-efficient and relatively low-tax environment, which is discussed below:
- It has no federal income tax or capital gains tax, so rental income and the proceeds of selling property tokens are entirely tax-free.
- Value Added Tax (VAT) may be levied at 5% for commercial properties, whereas residential properties are almost wholly exempt.
- With the expansion of tokenization, the treatment of VAT may vary depending on whether the tokens are considered virtual assets or short-term real estate interests.
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