Real Estate NFTs: How It Began
Before the advent of NFTs, it was such an impossible task to tokenize digital arts; hence, digital artists faced tremendous obstacles measuring with their counterparts in contemporary arts. NFTs disrupted the field, and since then, there have been many attempts to replicate this success in other areas, particularly NFT real estate.
Instead of continuing the trend of discussing such a goldmine in hush tones — Natalia Karayaneva, a real estate developer with tech application and a contributor on Forbes online, took a decisive step.
She sought ways to apply blockchain technology, particularly NFTs in real estate, in an article and followed it up with actions later.
A couple of months later, some background collaboration between stakeholders birthed the auction of the first real estate NFT. An elated Natalia revealed the groundbreaking feat in another article — more was coming.
Earlier in February 2022, Natalia’s real estate company, Propy, sold another property as NFT for $653,163.
The sale opened in the NFT world.
NFTs in the real estate industry
NFTs have already made an in-road into the real estate industry.
Investing in NFT Real Estate
Investing in NFT real estate can be approached from two fronts, fractional ownership (FO) and entire assets(EA).
Fractional ownership is a type of tokenization similar to owning shares in a real estate investment. An investor gets tokens that certify their part ownership in a real estate investment.
Entire asset tokenization gives an investor the sole investment right over the property. The property’s deed gets tokenized for sale as NFT, with the property serving as the utility.
Digital real estate vs. physical real estate
While physical real estate exists everywhere, digital real estate exists in the virtual world, popularly known as the metaverse. Digital real estate forms an integral part of the NFT space, with trade volume reaching $500 million in 2021.
Digital real estate NFTs have different utilities, from property-based NFTs to play-to-earn games NFTs like Decentraland, Solanaverse, Sandbox, Upland, Axie Infinity, etc.
Only a limited number of digital NFTs exists; this is to encourage scarcity and, subsequently, increase in values of minted real estate NFTs.
How do real estate NFTs work?
The Crypto ecosystem thrives on anonymity and decentralization, so it’s normal for the uninitiated to question the viability of real estate NFTs.
Contrary to that assumption, things are picking up. In the case of FO real estate NFTs, real estate companies list tokens of platforms and welcome investors to purchase them. Each token represents a share, and the NFT serves as the share certificate. Investors get investment returns like regular shares, and should they decide to sell for profit, there’s no stopping them.
However, in the case of EA real estate NFTs, there is an added layer of difficulty stemming from the fact that real, physical property is involved.
The main bottlenecks appear in conducting background checks, Know Your Customer (KYC), scaling through legal requirements, real estate tokenization, and transfer of ownership.
Propy solved these issues and successfully sold multiple real estates as NFTs doing this.
- They converted the house from personal ownership to a US-based legal holding
- The company then tokenized the holding by building a protocol around it
- Subsequently, the tokenized holding goes on auction
- The protocol collects information and conducts a simple background check
- There is an easy transfer of the tokenized holding, and the property serves as the utility.
Use of NFTs in mortgages
Some traditional financial institutions and most FinTechs already recognize Crypto as tenable financial instruments — paving the way for more conventional application of Crypto and Crypto-backed assets in daily life. We’ve already seen examples in Crypto-based mortgages.
The use of NFTs in mortgages is not mainstream yet; nevertheless, a few companies are testing the water already.
LoanSnap, through its Bacon Protocol, offered its first set of mortgage NFTs at the tail end of 2021. The NFT puts a lien on the property while the protocol issues a loan against the NFT.
In addition, further automated use of NFTs looks likely with smart contracts that will trigger the release of a mortgage on meeting the conditions.
Advantages and disadvantages of real estate NFTs
The field’s novelty is a source of concern, as with new things like this, tweaks and changes are inevitable along the line.
NFTs bring an unprecedented speed to real estate transactions and simplify the transfer process.
Real estate NFTs make it easier to access ownership records of real estate properties.
The field is not immune to the uncertainty of the Crypto market.
The future of real estate NFTs
It took the foresight of a few invested stakeholders to take the first step. As the field gains more traction, more people will come on board. Irrespective of the current status, real estate NFTs have an unpredictable future, along with everything else tied to Crypto.
The real estate industry follows a tradition that has been in existence for ages. It would take a real innovation to disrupt the field; NFTs seem to have what it takes. Optimism is the word.