Tokenized Real Estate in India: Navigating Regulatory and Structural Gaps (Part I)

[Bhavishya and Yash are students at Dr Ram Manohar Lohiya National Law University.]

The world is moving towards a more digital regime. The nascent initiative is the ownership of blockchain via tokenization. This takes away the need to have physical ownership of an asset such as land. Tokenization is the conversion of an asset or currency into a digital representation, i.e., tokens. It helps to convert an asset through a digital technology that can be managed without a digital authority on a blockchain. A buyer can purchase these tokens via initial coin offerings and get a fractional ownership in that asset. It is an emerging market with an expected capitalization of USD 2 trillion by 2030. A token can be used across sectors and protects all types of sensitive data, including bank transactions, medical records, criminal records, vehicle driver information, loan applications, stock trading, and voter registration. Tokenization in real estate is emerging as the driving force.

With the development of digital ledger technology, real estate tokenization (RET) has gained much traction. With countries like India seeing a digital revolution, such technologies stand at the forefront. Nonetheless, such innovations also bring forth a void in the legislative framework in India. While such innovations are a welcome step, they must be backed by a clear regulatory framework. This article will try to highlight the current regulatory state around RET in India while taking note of the other jurisdictions and suggesting potential solutions for RET’s implementation.

Real Estate Tokenization in India

With the real estate prices soaring even faster than consumer inflation, buying a property in a metropolitan city in India has become a distant dream for the average household. Real estate tokenization offers decentralized and fractional ownership, although digital, enhancing liquidity, transparency and accessibility. India’s first tokenized real estate has emerged in GIFT City, Gandhinagar. Terazo has partnered up with Tokeny to launch Oryx and it has received the International Financial Services Centres Authority’s (IFSCA) regulatory approval. Through its collaboration with Tokeny, Terazo is utilising Tokeny’s SaaS tokenization platform to issue and manage asset-backed tokens on the Polygon blockchain. However, the regulatory landscape around RET is still developing.

Telangana has become India's first state to release a Technical Guidance Note on Asset Tokenization. Further, in February 2025, the IFSCA released its consultation paper titled ‘Regulatory Approach Towards Tokenization of Real-World Assets’ to invite public input in relation to important regulatory considerations with respect to the tokenization of real-world assets in the International Financial Services Centre. There are no specific proposals in the consultation paper; instead, it sets out four categories of questions on various issues around asset classification, issuance, trading, risk management, and oversight. It seeks views from industry participants and experts to develop a regulatory framework that achieves a balance between innovation and risk. Despite these developments, the market is highly unregulated and needs legal, tax and regulatory reforms.

Critical Challenges to Real Estate Tokenization in India

The efficient implementation of RET is obstructed by various hurdles, like regulatory friction, asset integrity and legal vagueness vis-à-vis the enforceability of ownership. India is in a grey area, where there is an absence of a statutory framework that governs tokenized real-world assets (RWAs). The primary regulatory conflict is the application of the securities law. As there is an absence of a bespoke statute (legislation made specifically for a topic/problem), the tokens of fractional real estate ownership are assessed by the SEBI's Collective Investment Scheme (CIS) framework. The CIS framework is used when funds are pooled from the public with the expectation of profit.

First, many token structures have similar elements, i.e. managerial control and the expectation of returns; however, they have a risk of being declared as unlawful without registration as a collective investment management company. SEBI has introduced small and medium real estate investment trusts, which are a specific type of structure for fractional property ownership, it would channel the ownership platform through a regulated business-trust framework, however, the biggest challenge in this regard is that these legacy structures gives rise to conflicts whether RWA tokens should be treated as “goods,” “derivatives,” or a unique digital instrument.

Second, another challenge unique to India is the deficiency in the land records system. India works on a land tiling system where historical records are used to prove ownership. The record of rights proves the ownership through a plethora of documents and registration records, which are only agreements between two parties, but do not verify the integrity of the ownership claim. 

This deficit makes it challengeable in court, and if a physical asset is inherently liable to be challenged in court, the legal security of a digital token is undermined, and it touches upon the core of blockchain technology, i.e., tamper-proof and immutable record keeping. Thus, the implementation of real estate tokenization cannot reach its full potential without land reform efforts to transition to conclusive titling, which is a system where the government guarantees ownership titles.

Third, the Information Technology Act 2000 lacks provisions that grant explicit legal recognition to blockchain-based transactions or define the process for transferring ownership rights via such digital instruments. The smart contracts become another risk as their validity is a pressing concern. The characteristics of smart contracts, such as self-recognizing and self-executing, conflict with the conservative requirements of the Indian Contract Act 1872. Section 10 allows for contracts formed by mutual consent; however, mutual consent formed in automated smart contracts still remains undefined. This ambiguity puts risk on both investor recourse and the automated enforcement mechanisms.

Fourth, the greatest disincentive for institutional investment is the ambiguity in clear tax classification. The Finance Act 2022 introduced a 30% tax slab on virtual digital assets; however, the recognition and status of tokenized RWAs, which will represent physical property rights, is still unclear. This vagueness can lead to different and wrong interpretations of different taxes, such as the capital gains tax, GST applicability, etc.

Fifth, stamp duty, which is a type of tax on the registration of property deeds, is an important revenue for the government. The digital transfer of tokenized ownership theoretically bypasses the traditional deed registration process, which creates an economic and political hurdle. The government will be unwilling to go away with this substantial revenue source without a clearly defined, mandated replacement mechanism for digital transfers. This uncertainty even deters international and national investors due to a lack of predictable financial frameworks.