RWA property tokens face warning over hidden repair liabilities

Real estate tokenization platforms advertising 10% to 14% annual yields are exposed to abrupt income losses when building repair liabilities have not been priced, according to Igor Samotesov, founder and technical risk partner at SPEC INTELLIGENCE. In a Finextra opinion post, Samotesov said early yield failures and investor disputes in the real-world asset, or RWA, sector are being driven by physical asset risk rather than smart contract failures or thin liquidity.

Samotesov’s argument focuses on a gap between the digital structuring of tokenized property investments and the condition of the buildings that support them. He said the industry has spent heavily on software audits and legal special-purpose vehicles while relying on dated, vendor-produced PDF condition reports for multi-million-dollar real estate assets.

In a typical structure described by Samotesov, a platform lists a property and markets a stable yield to investors. That yield depends on operating income from the underlying building. If major mechanical, electrical or plumbing systems fail, or if roof and structural issues require urgent work, repair costs can be taken from that income and reduce or eliminate distributions.

Samotesov said traditional appraisals often fail to capture ongoing deterioration in systems such as mechanical, electrical and plumbing equipment, roofing and structural components. He also said inspection reports can use caveats such as “requires further investigation,” leaving immediate capital expenditure liabilities recorded at zero.

The economic effect, according to Samotesov, is that deferred maintenance can be transferred into the tokenized product without being reflected in the yield or risk profile presented to investors. A building with a 20-year-old chiller system or a damaged foundation may appear to support a double-digit annual return until a repair event redirects the asset’s operating income toward emergency works.

Samotesov said platforms would bear the greatest commercial damage from this mismatch, citing potential investor withdrawals, reputational losses and legal claims alleging technical negligence. He did not identify specific platforms, transactions or legal cases in the post.

Call for a physical validation layer

To address the risk, Samotesov called for a mandatory “Physical Validation Layer,” which he described as a pre-tokenization process for auditing the physical condition of an asset. Under that approach, a property’s capital expenditure risks and physical parameters would be assessed before any token is minted.

He said those findings should then be converted into mathematical inputs that can be used in smart contracts. The proposal would make physical liabilities part of the financial logic of the token, rather than leaving them outside the digital structure.

The warning reflects a broader challenge for tokenized real estate: programmable ownership and automated distribution mechanisms still depend on the cash flows and maintenance burden of physical assets. Samotesov said the RWA market must stop treating unverified repair exposure as an external issue if it wants to scale property-backed tokenization.

This story draws on original reporting from Finextra Research.