NFT in Real Estate: Impact and Uses

“NFTs are digital real estate and it is going to be worth a lot more than real estate” 

― Anuj Jasani

 

 

Role of NFT in Real Estate

 

Agents and many crypto investors are now wondering about the scope and role of NFT in Real estate. Is it actually possible? Does NFT have a place in the real estate sector? NFTs are tokens that either represent music, art, images, videos or anything that can be owned digitally. 

 

It is now becoming more broder and includes various other areas like- architecture, real estate, tesla etc. If we look at a brighter side, than before NFT it was impossible to collect or hold artwork in digital format. As ownership is based on authentication and proof, it is easier to make real estate investments through NFT. 

 

Some of the major real estate sales via NFT are virtual houses. On twitter you can also find various pages that sell virtual properties. Mars House is one such virtual property that was sold for $500k. You can also check out role playing games like Superhero etc, that sell virtual properties. 

 

The main question is if NFT can be used in physical purchase of real estate properties as well. The current situation related to real estate investment is cumbersome. 

 

There are various laws, regulations and government norms that people have to abide before transferring anything. If NFT is successful in tokenizing the property rights, then it will become very easy to buy, sell and transfer property.  

 

As compared to other sectors, Real estate is a tad slow in implementing and adopting technological changes. But blockchain technology and real estate go very well together. The number reason is that it is immovable and issues against collateral. 

 

It depends on the type of real estate- land, houses, commercial buildings etc that what arrangement and maintenance fees will be levied by the companies. Yet there are certain challenges that NFT in Real estate has to overcome like:

 

1. The biggest challenge is related to hacking of smart contracts and misuse of the cryptographic key. In case you forget or lose the key, you will lose the bitcoin forever. So, while formulating the rules related to NFT in real estate, more weightage should be given over locking money rather than asset. If money is locked and ownership is given, then in no case any unclaimed property rights will arise.

 

2. Crowdfunding is another popular concept in NFT for pooling funds. But it also attracts the rules of the SEC. Two things can happen- either the trading will be user friendly or rules will change. It is another challenge that NFT real estate has to face.

 

If we look closely, then transferring 100% of the property rights through blockchain is easier. The basic process of NFT in real estate sale will go like:

 

• Preparation of sale of the property through the NFT in a legalized way.

 

• NFT being minted, that contains the data about the real estate property being bought or sold. Images, videos and everything related to that property is included in it.

 

• NFT being a token acts like ownership proof.

 

• Lastly, the person having the NFT remains the owner of real estate property.

 

Open Sea, Gemini Nifty Gateway are some examples of marketplaces selling real estate property. On such platforms, buyers and sellers interact. Buyers bid for the real estate property they want to buy and the highest bidder is declared the open winner. 

 

The winner pays in crypto or fiat for the property. The time taken for the funds transfer and the property to reach the NFT wallet is enough for the buyer to complete all the other legal proceedings and paperwork. If the legal work is not completed timely then, everything is reversed. 

 

Piper Moretti the CEO of Crypto Reality Group said that-  “This opens up an entirely new playing field for home ownership,”

 

Positive Impact of NFT on Physical Real Estate 

 

It is very important to understand the difference between virtual and physical real estate. Virtual one is just an online representation. It includes in-game properties or lands developed in the virtual world. 

 

Physical real estate is where we live- our home, where we work- our office building etc. Nowadays, due to metaverse and NFT, the virtual real estate marketplace is heating up. Multiple games like Upland, Decentraland offer virtual real estate properties. 

 

Both types of real estate are equally important and valuable in terms of NFT and cryptocurrencies. NFT has had a great impact on the Physical property market. More and more investors want to convert into virtual properties as it is more fun, simple, secure and property ownership titles are easily given. 

 

Here are some points that show the positive impact of NFT being introduced in the physical real estate market.

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Positive Impact of NFT on the Physical Real Estate

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1. No disputes related to Property Ownership

 

On the blockchain network, each and every transaction is stored. It is like a huge server that has a record of everything. Each asset related entry is recorded in the blockchain. Right from the initial date until the transaction gets complete, proper record is present. 

 

Therefore, in no case any dispute regarding ownership will arise. It will be crystal clear as to who is the owner of the property. This is the biggest advantage of NFT and blockchain on physical real estate property.

 

2. Fast and secure transactions

 

Most of the blockchain related transactions are completed within seconds. Even the transaction fee is minimal or nil. If the buyer and seller are known to each other through any previous purchase history or relation then there is no place of any intermediary. 

 

The said buyer can directly transfer the amount into the wallet of the seller. Therefore, in physical real estate a middleman is usually present to complete the sale, but by introduction of NFT, no such agent is needed.

 

3. Automation and smart contracts

 

In blockchain a simple logic is there- “If not this then that”. Every smart contract works on the same logic in blockchain. Using these smart contracts, automatic payments, title transfers and even escrows are created. Once the sale transaction is complete, the contract will be disposed of automatically.

 

Uses of NFT in Real Estate

 

The physical real estate industry is now also a part of metaverse which has virtual lands. Here are some uses of NFT in Real Estate :

 

NFT in Real Estate (Traditional)

 

1. Ownership of Real Estate Property

 

Nowadays NFT can be used to represent real properties as well. Using NFT, buyers can remove the intermediaries or agents as blockchain in itself is sufficient to authenticate and approve the ownership related issues. More and more traditional real estate investors are shifting to the new technology.

 

2. Fraction investments and programs

 

Usually investments are capital intensive and the investors are using NFT to raise funds. This method is also like crypto crowdfunding. But instead of crowdfunding, the ownership rights are transferred as fractions. 

 

The basic purpose is to get money in return for transferring part ownership of the homes. Some small scale businesses in need of money can resort to this solution using NFT in real estate. 

 

Certain loyalty programs are also there like the Marriott Hotel chain gave away NFT to the top three winners. People are shifting more towards the NFT and metaverse.

 

NFT in Metaverse (Virtual Form)

 

1. Virtual Ownership

 

There are many metaverse platforms like The Sandbox, Decentraland etc, that have made a record breaking sale of the largest virtual land worth $4.3 million. Each of the NFT related transactions are recorded on the Ethereum network. Then later on the NFT is transferred to the wallet of the person representing his ownership for the said NFT.

 

2. Finance

 

For finance purposes also NFT real estate can be used. Normally for obtaining a loan a collateral is required. Likewise, in the case of metaverse, NFT can be used as a collateral for getting finance. 

 

If both the parties agree then the said finance is approved using a smart contract. The main property of the owner can also be divided into small fractions to get finance for it. 

 

Therefore, just like traditional fractionalization, in the metaverse also property can be divided into fractions. Moreover, interest is also earned on the asset.

 

3. Tax related consequences

 

IRS has approved that NFT will be considered taxable property if a transaction related to sale, purchase has occurred. Obviously, the blockchain platform has some hackers and the system has certain glitches but the title of ownership in respect of property is always true. 

 

Both buyer and seller have to comply with all related laws, legal terms to properly authenticate their transactions. Compared with the traditional real estate system, laws are more complex and complicated in the metaverse. If the owner by chance violates any of the rules then he suffers the risk of losing the property altogether. 

 

Therefore, choosing the right laws is very tough in the metaverse. Each country has a different law in respect of property ownership, so there are disputes many times. Remedies in respect of breach of law is another challenging aspect when it comes to real estate laws in the metaverse.

 

Also Read | NFT in Architecture

 

If we think properly then NFT in real estate is a great solution for ownership related issues that are faced in the traditional system. It is more simple, secure and includes other types of investments also like shares and real estate. 

 

The only thing important in this case is to be diligent and follow each and every law issued by the government in relation to ownership.