If the coronavirus pandemic has taught us anything. It is that some things come completely unexpected. Not only has it brought about the need to make a much more digitized real estate market. But it has also caused new trends that have been made known through different social networks.
As blockchain technology advances its spread in different markets and sectors of society advances. Overnight non-fungible tokens or NFTs have flooded the feeds of thousands of users on the web giving digital art a bit of the character and uniqueness of analog art.
However, over the past few months the cryptocurrency craze in the real estate industry. Reached an inevitable phase the struggle to figure out how to buy and sell homes through non-fungible tokens also known as NFTs. in English).
What are NFTs?
In the last year the experimental uses of NFTs in the real estate sector have been a trend. From loans to construction projects NFTs are being adopted by different companies seeking to improve processes and streamline real estate transactions. Which are often complicated by all the paperwork and bureaucracy involved.
An NFT (non fungible token) is nothing more than a unique digital asset. Which is registered in a blockchain (such as Ethereum or Solana), and which generally has associated information (metadata).
Non-fungible tokens have associated smart contracts or intelligent contracts that whenever possible are fulfilled automatically thanks to the blockchain.
Anyone can create an NFT but what is important is that the creator considers the value of that non-fungible token. We have always seen non-expendable assets in our lives as they uniquely represent an asset (a concert ticket a painting, an object).
According to the types of fungibility there are 3 assets:
Expendable. It is the one we have known all our lives, money. All €1 coins are worth the same and none is more valuable than another.
Semi-fungible. A print run of unique books or the seats of an airplane that belong to different classes (business or tourist).
Not expendable. These are the assets or unique pieces that a creator has and that have a value or uniqueness different from others (La Gioconda by Leonardo da Vinci).
The Property Rights
An NFT itself is a digital certificate of ownership and authenticity. Which indicates that a content is unique and the property rights are held by the person who has acquired it. All operations and transactions are recorded on the blockchain.
Which serves as proof of ownership and ensures that the seller receives proper credit for the sale. This asset cannot be modified or exchanged for another that has the same value because there are no two NFTs that have the same value. Each one is unique and represents a certain value.
There are two types of tokenization involved in real estate:
whole asset (EA) and fractional ownership (FO). Fractional ownership tokenization is pretty simple.
It is similar to a crowdfunding platform or other similar structure that allows investors to buy shares. Depending on how the investment is structured each fractional owner owns a number of tokens that represent shares in the project. FO tokenization is already being used in limited cases in the real estate industry.
Whole asset tokenization on the other hand cannot work unless the actual ownership deed is converted to an NFT. This remains incredibly difficult to achieve due to the regulatory environment surrounding real estate investments although steps continue to be taken to advance the field. Ultimately there has to be a new asset class created for an EA token to exist for a real estate deed.
In the case of fractional ownership tokenization it is much easier as corporations owning real estate assets. Easily tokenized and distributed using NFT tokens which is understood like a stock as a type of security.
How does NFT Real Estate work?
Real Estate NFT tokenization work like any other non-fungible token. They are purchased using a digital cryptocurrency chosen by the seller and stored in a virtual wallet.
Investments held with fractional ownership tokens behave in this sense more like a stock or part of a real estate project. Rather than an actual or virtual item. The profits that are made are paid out like any other type of stock-based investment since ownership is only part of the business.
As it is a relatively new world we do not yet know what exact risks real estate NFTs may carry. However we know that like any other non-fungible token. They promise very secure and easy-to-trace property records for a wide range of real estate investments.
Real estate NFTs involve the sale of real estate in virtual worlds and are emerging as an investment frontier. These assets may provide easier ways to transfer ownership of shares in real estate investments or virtual real estate but initially, entire holdings are not expected to be transferred any time soon.
In addition this market is governed by current real estate laws, which make it very difficult to maintain entire real estate properties such as NFTs.
However as blockchain technology and different cryptographic tools become more and more useful for things. Creating mortgages or generating crowdfunding opportunities things are expected to change.
Some examples of NFT real estate
Michael Arrington, Founder of TechCrunch
In May 2021, Michael Arrington listed his apartment in Kyiv Ukraine as an NFT real estate. Through the real estate platform Propy after initially purchasing the property using Ethereum in 2017.
The Prometheus Developer
Developer Prometheus sold two luxury homes in Portugal through the cardano cryptocurrency in 2021. The properties available through non-fungible tokens, “enabling future owners to resell the properties at the click of a button via of Blockchain technology.
Although many see a risk in entering this market others have already launched and see in it the future of the real estate sector. Some experts even confirm that NFTs are the future of the economy. There is no doubt that the future that awaits us is preceded by digitization, so we should not close the doors to anything.