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Is Real Estate NFT the Ultimate Future?

2022-07-26 Investing

If any of us would finally decide to sell our house, and move to Bali, we couldn’t do it easily. The process would involve a lot of paperwork, planning, and legal processes that would take months, if not years to complete. Along with non-fungible tokens, that have so far been primarily used for proving ownership of digital assets, it is now possible to conveniently represent physical properties in the digital world too.

It might be difficult to comprehend the advantages of NFTs and blockchain technology without any basic understanding of them. Even if some people find this topic controversial, there is no denying that the technology of blockchain has improved many sectors and industries, replacing the old with the new. Now, real estate has become no exception to this innovation. Therefore, this article is going to discuss the impact that NFTs might have in the future of real estate.

The purpose of NFTs

NFTs have spread like wildfire in recent years, becoming popular as pieces of digital art and breaking some sale records that intrigued a lot of people and companies to start releasing their own NFTs. Even Nike and Coca-Cola have joined the club with many more popular names joining the ranks every day. 

Non-fungible tokens are unique digital constructs or assets. NFTs are also a form of cryptocurrency, like Bitcoin and Ethereum (except these are fungible). They provide a receipt or digital signature of authenticity, stored on the blockchain that is available for the public to see. To put it in a simpler perspective, an NFT is just like a QR code that you get when purchasing tickets to the cinema – once it is used, you can’t send it to your friends. It has value and is one of a kind code that you’ve paid for. 

Digital artwork and music are the most common areas where NFTs are established. Nevertheless, proponents of the technology have stated that NFTs can be ingeniously applied, and as a result, have the potential to affect every industry. Now, real estate is making its own move toward the blockchain and NFTs. It’s considered to be one of the most interesting and valuable ways that NFTs can infiltrate the mainstream.

Real estate sector and NFTs

The real estate industry is huge and endless and is specifically one of the main driving forces for the economies of many countries. From vacant lands to offices or houses and decks, people can sell and buy property all around the world. Yet, one of the complications of real estate is the process of transferring property ownership to someone else. 

Contacting a real estate agent, listing the property on the market, finding and meeting tons of potential buyers, and then dealing with all of the documents, deposits, and contracts – all of that does sound like a lot of work. Purchasing a home or obtaining an equity line of credit currently also takes a significant amount of paperwork, time, and nerves. Equally, lack of innovation and expensive fees for services are other key characteristics of this sector.

Companies such as Propy started implementing NFTs into real estate and helping reduce the downsides of old-school real estate procedures. Just like with common NFTs, the blockchain thus ensures the security and data integrity of a token that is holding all the property deeds. This is a really useful enforcement of NFTs in a real-world case scenario.

Real estate startup Propy, has already sold the first physical property in the auction, where the winner has received an NFT as evidence of ownership for 210 ETH – $653,000. The company has developed smart contracts and is planning to expand globally, offering a simple and adjustable way to purchase real estate through the blockchain.

How will NFTs affect the real estate system?

Real estate NFTs simply indicate that the property’s ownership rights are associated with the NFT. This means, that once the property is sold, the new owner will receive an NFT, that will provide access to legal documents – owning the entity that owns this property. Therefore, officially owning the property itself.  Conveniently, it is recorded on the blockchain where the owner would have a permanent record of the purchase. This is done smoothly, without having to go through the typical hassle of closing procedures and paperwork.

With an NFT, the transaction itself would only take a couple of minutes, and the additional costs for the agents, title, and closing fees would be reduced. Consequently, the process of selling or buying real estate would become easier and more time-efficient.

Exclusive ways that NFT would improve the real estate industry system:

Fractional ownershipMortgages
NFTs could be extremely beneficial to fractional ownership. Since many fractional ownership platforms are unable to provide alternatives for real estate exposure, this kind of practice would make it possible for a regular person to participate.

Shared properties can be minted and sold as NFTs, which means that just a section of a house would be put on for purchase.
This way, the NFT owners would be paid a regular rental income.
NFTs may be used to borrow funds in order to purchase a home or property with decentralized finance (DeFi) mortgages. For example, if someone issues an NFT which is backed by authentication of a current property or asset ownership. 

Investors might purchase this NFT, which represents a piece of debt, and NFT holders would receive repayments according to the proportion of their initial investment, plus interest via the blockchain. 

Thus, it would essentially be a mortgage payment that doesn't require the involvement of a central authority.

This type of technology is going to be much more efficient for an individual that is participating in such transactions, because all of the information that is now gathered by the title company, would be accessed on the blockchain in the future. Generally, the title company takes care of the title search, analyzes the background and history of the property, proceeds with the inspections, and looks into the owner’s information. The blockchain ought to do it automatically, and that kind of data would be accessible and recorded.

Royalty fees

There also is a possibility that along with selling the real estate NFT, people would be able to receive some royalty fees. Royalties refer to the percentage fee you can choose to pay as a creator and receive if your NFTs are sold on the marketplace. This means that whoever owned the property first, can be entitled to receive royalties from any secondary sales made later.

Verification and security

Real estate market, especially in the United States, is affected majorly by fraud. NFTs, due to their secure yet easy transferable nature, would make it a lot easier to verify the ownership and secure the property documents for the next owner. So, with the implementation of NFTs real estate could assist by saving time, making the process more effortless and less risky.

Challenges

There are certainly some challenges the real estate sector faces in the adaptation of NFT and blockchain. Such challenges are inevitable, as with any other innovation in history. It takes time to make things right:

  • The logistics of already sold NFTs are still complicated and need improvement. In the case of Propy’s first sold real estate NFT, the token was linked to the ownership of LLC (Limited Liability Company), who owns the physical asset, rather than the actual house deed.
  • Real estate law is slow to change and it may take a long time for digital aspects to implement. Not all laws have caught up with technology yet, and it is still required for the county’s clerk to grant legal ownership.
  • People overall are slow to accept change, especially the older generation. For some people, it is easier to proceed in the old and established way, because they trust that order and they are not even millennials. There also is a lot of skepticism not only towards this innovation but the whole NFT movement itself.

Outro

Real estate industry is changing, and it does need to change. Paperwork and prolonged procedures are really old-fashioned, so it goes without saying that automation is needed in this field. It is unclear whether NFTs will be the ultimate future to completely pace the industry up, but they will definitely be a part of it. Besides, the possibilities where NFTs can be used in real-world scenarios like this in the future are going to be absolutely incredible.

Thus, NFTs are not just profile pictures or avatars, they're so much more than that. They do provide value and utility to people around the world. It is an intriguing idea that is developing now and you should be aware of its development, as for many, the intersection of NFTs and real estate holds great promise.

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