Redbridge

With the rise of Web3 and blockchain technologies, the logic of real estate participation is undergoing a fundamental transformation. Today, an investor can purchase a digital share in a property in the form of an NFT, which grants them a fixed right to receive income, use the property, or participate in governance through a DAO.

This model enables developers to raise capital globally, independent of traditional banks, and allows investors from anywhere in the world to participate in real-world projects without physical relocation or complex local procedures.

But for this structure to work in practice, it needs more than just tokens or code – it requires a clear legal foundation: an SPV (Special Purpose Vehicle), a transparent charter, enforceable investor agreements, smart contracts, and the right jurisdictional framework. Only with this foundation can tokenized real estate become a secure and compliant model.

What Can Be Tokenized

Tokenization applies not only to residential properties, but to a broad range of asset types. Common examples include:

Hotels, resorts, and branded residences
Warehouses and logistics centers
Co-working spaces and flexible offices
Commercial buildings and mixed-use developments
Development land and pre-construction projects
Serviced apartments with rental income rights
Residences with fractional ownership models

Each type of property can be digitized through NFTs that represent a share of income, usage rights, or a hybrid model. These tokens are not just digital images – they are programmable instruments tied to real economic models and underlying physical assets.

Legal Nature of Real Estate NFTs

In real estate, an NFT (non-fungible token) does not mean legal title to land or property. Instead, it can represent:

A share in the company (SPV) that owns the asset
A right to receive a portion of the asset’s income
A fixed right of use (e.g. number of nights per year)
A vote in governance or DAO participation

The legal strength of the token only exists when it is backed by documentation: a public offer, investor agreement, company charter, and a smart contract. Without these, the token is just a representation – not an enforceable right.

Project Architecture

The foundation of every tokenized project is a Special Purpose Vehicle (SPV) – a company created specifically for the project. It must be registered in a jurisdiction that permits asset ownership, income distribution, and investment participation.

The SPV holds legal title to the real estate. Then:

The SPV charter includes rules on investor rights, profit distribution, voting, and limitations on the developer’s actions
NFT issuance logic is defined, along with documents like the SAFT, Terms & Conditions, and a Whitepaper
Tokens are minted, each representing a specific right (income, usage, governance)
A platform or DAO interface is created, where investors interact with the system, and smart contracts automate the key operations

All parties – developers, investors, managers, custodians – operate under predefined and transparent legal rules.

How Projects Are Financed and How Developers Earn

Financing of the tokenized project begins with a developer’s contribution, which may include:

Land or property
Architectural plans and permits
A functioning asset (e.g. hotel)
Initial capital investment
Operational know-how or brand rights

This contribution is structured as:

A loan from the developer to the SPV (reimbursed with interest)
Preferred equity with defined return terms
Intellectual property (IP) or brand contribution, with royalties

Once tokens are sold to investors, funds enter the SPV and are used to:

Repay the developer’s initial contribution
Finance construction or operational costs
Cover legal, technical, and platform expenses
Establish a reserve for risk management

The developer earns through:

Repayment of their investment with a return
Retained equity in the SPV and share of income
Management or licensing fees
Royalties (for brand or IP usage)
Future sale of tokens or equity on secondary markets

Importantly, the developer can retain strategic control even after selling most tokens – if governance rights are structured accordingly in the SPV and DAO.

How the Investor is Protected

Each investor receives:

An NFT linked to a signed agreement (e.g., public offer, SAFT, or smart agreement)
Access to a dashboard or platform with full reporting and income tracking
Governance participation rights (e.g., via DAO or board vote)
Automated income distribution embedded in the smart contract
Exit options: secondary market resale, buyback mechanisms, or redemption on exit

The combination of legal agreements, smart contract logic, and transparent governance protects investors from potential abuse by developers or platforms. Additional safeguards often include:

Escrow-based fund release mechanisms
Custodial services and external oversight
Mandatory audits and reporting
Platform and asset-level insurance
Full regulatory KYC/AML compliance

What Happens on Asset Sale or in Case of Problems

If the asset is sold, the SPV receives the proceeds and distributes them to token holders according to predefined terms. The NFTs may then be burned, converted, or transitioned to a new project.

If the developer exits or fails to manage the project, mechanisms can be triggered through the DAO or an investor board to appoint a new operator.

If the SPV is liquidated, its assets are sold, and proceeds are distributed to token holders. All these scenarios are governed not by ad hoc decisions, but by legally binding contracts and charters.

Secondary Market and Liquidity

One of the major advantages of tokenized real estate is liquidity. NFTs can be:

Sold to other investors on the platform or marketplace
Gifted or inherited
Bought back by the issuer under predefined terms
Redeployed into new investment rounds or upgraded projects (if DAO-enabled)

Unlike traditional real estate – where exiting a project often requires full asset sale – tokenization allows flexible entry and exit models, including fractional transfers.

Taxation and Regulatory Considerations

Tax and regulatory compliance form the legal backbone of any tokenized real estate project. Without proper structuring, even the most innovative model can run afoul of the law.

For the Investor:

In most jurisdictions, taxes arise from:

Income received (e.g., rental or profit distribution)
Capital gains (from selling tokens at a profit)

For the SPV

The company pays corporate tax in its jurisdiction of registration – if applicable. Some jurisdictions (e.g., the UAE, BVI, Cayman) offer 0% tax under defined conditions.

Key Consideration:

To avoid classification as a security (which would trigger licensing under capital markets law), the NFT must be structured as a utility token or asset-backed participation right – with no guaranteed income or investment promise.

This requires:

Clear utility definition
No promise of ROI
KYC/AML onboarding and limitations on public solicitation
Well-drafted terms, disclaimers, and investor agreements

Real Estate Tokenization in the UAE

The United Arab Emirates (UAE) is among the most advanced jurisdictions for launching legally compliant real estate tokenization projects.

1. SPV Registration

You can register an SPV in either:

DMCC (Dubai Multi Commodities Centre) – a free zone for commercial activity in Dubai
ADGM (Abu Dhabi Global Market) – a financial center with its own common law legal system

The SPV owns the property, which is registered through the DLD (Dubai Land Department). NFTs are not recorded in the DLD, but they reflect rights within the SPV, which is recognized as the legal owner.

2. Is a License Required?

If the token is not a security, no license is needed. To qualify, the structure must:

Avoid ROI guarantees
Emphasize utility or access rather than passive investment
Limit investor access through compliance checks
Include comprehensive legal documentation and disclaimers

If the token is structured as a security, a license from SCA (Securities and Commodities Authority) or a licensed platform is required.

3. Position of DMCC and ADGM

DMCC allows NFT issuance without a license, if the token grants usage or participation rights linked to the SPV
ADGM allows registration of DAOs, programmable ownership models, and asset-backed tokenization
Both support modern digital corporate governance models – provided legal form is respected

Land Department (DLD) and Property Registration

The DLD in Dubai allows SPVs to register property in their name. This means:

Investors do not appear in the land registry directly
The NFT is not recorded as a property title
But rights are anchored through shareholding in the SPV, governed by its charter and agreements

This makes the UAE one of the few jurisdictions where digital participation in real estate through tokens is legally grounded.

Common Questions from Crypto Investors, Lawyers, and Developers

Can tokens be sold on a secondary market?
Yes – through platform mechanisms, peer-to-peer transactions, or pre-agreed buybacks.

How are returns paid?
Through smart contracts or off-chain payment systems – in fiat or crypto – based on a fixed distribution schedule.

Can tokens or projects be insured?
Yes. Property, governance liability, and digital platforms can be insured. Captive insurance is also possible.

Is audit required?
Often recommended or mandatory, depending on the jurisdiction and investor class. Audits may be conducted at the SPV or platform level.

How can projects avoid security classification?
By removing any guaranteed returns, avoiding public fundraising, focusing on utility access, using disclaimers, and onboarding qualified investors with KYC.

How is transparency maintained?
The platform should provide:

SPV-level reporting and documentation
Public smart contract code
Real-time dashboards for income and token status
Governance mechanisms (e.g., DAO voting rights)
Full legal terms, risk warnings, and exit terms

Conclusion

NFT-based real estate investment is no longer an experimental concept – it’s an emerging legal and financial infrastructure.

When built correctly – with a regulated SPV, enforceable contracts, DAO-compatible governance, and cross-border compliance – tokenization becomes a way to democratize access, increase liquidity, and align the interests of all parties.

For developers, it’s a model for raising capital globally without losing control. For investors, it offers secure digital access to real-world projects. And for legal professionals, it presents a new role: not just contract drafters, but architects of digital trust.

Achieving Excellence in Complex Cross-Border Transactions.

Over the past two years, REDBRIDGE faced an extraordinary challenge representing a group of shareholders from Zurich, Switzerland, who had invested in a multi-million dollar manufacturing enterprise in Russia up until 2022. The sanctions imposed on Russia brought about significant legal hurdles, complicating the protection of our clients’ interests due to complex domestic and international legal requirements.

In a situation where conventional strategies were not enough, our team had to think outside the box to navigate the intricate legal landscape. Through innovative solutions and relentless dedication, we successfully safeguarded our clients’ assets and secured their rights. We are proud to announce that the deal has been completed with full regulatory approval, allowing our clients to exit their shareholder positions and receive the full value of their shares.

This outcome highlights our ability to overcome significant legal challenges with creative and strategic thinking, reinforcing our commitment to excellence and client success.

Congratulations to Gevorg Tumanov, the Partner who led this case, and to the entire team of lawyers for their outstanding work and dedication.

Owning Real Estate Through NFTs: A Legal Guide for Global Investors