The real estate world sees new changes and developments happening every day. It is essential to stay updated on the innovations occurring in space. The rising popularity of blockchain and cryptocurrency is changing the way markets, and industries work. The real estate sector is no exception and is experiencing change. These innovations ensure that there will be several new opportunities available for investors.
The most significant opportunity for any investor is Real Estate NFT, or a way to sell fractional ownership of a property through NFTs.
What are NFTs?
Non-fungible tokens or NFTs are digital tokens issued on a blockchain. What separates them from a cryptocurrency is their lack of fungibility. It means that each token is a unique digital asset and is not identical to another. You can effectively use NFTs to tokenize physical or real-world assets.
At present, NFT’s primary objective is to, for example, Typically, it is easy for anyone to copy digital art, making it impossible to tell which copy is the original. However, the integration of NFTs makes it possible to attach a unique token to digital art. The owner can sell this token to another user and pass on the ownership.
The Real estate NFT phenomenon
For a long time, people have wondered how real estate NFT works. Though the NFTs see extensive usage in the digital world, there is immense potential in other industries. There is the possibility of NFTs representing ownership of a real-world asset or a piece of the property too. An example of real estate NFT is fractional ownership. Here, owners can list their property as several small tokens on the blockchain. Interested investors can purchase these tokens and receive a rental income for their purchase. This process benefits both sides and removes the reliance on intermediaries.
Real estate NFT also enables people to buy and sell fractional ownership in rental properties. This possibility opens up the real estate investment world to a broader audience. It also provides additional opportunities for people looking to unlock equity without moving or borrowing.
How real estate NFT works
Blockchain technology has existed for many years now and is not something new to the industry. The idea of how real estate NFT works is a straightforward process. Already, smart contracts can execute under specific conditions, and tokenization enables landowners to mint the property as NFTs.
The process of a real estate NFT works similar to the method used to mint or tokenize offline artwork. The token represents the ownership information of the asset and stores this data on the blockchain. A smart contract records essential data like investor’s rights, construction plans, ownership, and location. The property value is distributed among a fixed number of tokens. The property owner can issue these tokens to specific investors.
Following the initial token issuance, the property owner can list the remaining tokens on a digital exchange. Additionally, investors who first received the tokens can also list them on the marketplace for secondary trading.
Real estate NFT brings in a significant advantage to the industry. Real estate tokenization makes the sector accessible to a broader audience. This example is another use case of blockchain technology where a previously exclusive system limited to an elite class becomes reachable to the wider community.
But, how is such an accomplishment possible? Traditional real estate funds require a minimum investment and come burdened with substantial management fees. However, in real estate NFTs, the transaction fees are significantly lower.
Alongside this additional advantage, real estate NFTs bring in another benefit that is worth considering. Typically, transactions in this industry remained opaque and made it possible to conduct illegal activities like money laundering and tax evasion. That can all change with the implementation of blockchain technology, as it can secure the network from forgery and other illegal activities.
The downside to real estate NFT
There is always an inherent risk to dealing with new technology. Hence, it is essential to consider the negatives just as it is essential to examine the positives. Consider that real estate NFTs can potentially unlock fractional ownership of a property, but where would the legal rights to that asset actually reside? Can an NFT token holder force a property owner to sell their asset if the holder has enough tokens?
Such a potential puts the people living in the property at incredible risk.
Would NFTs go down the same route as crowdfunding sites? These sites received mixed success, and many closed down. It is difficult to see if NFTs could altogether remove third-party involvement as there is always a requirement for an agent to manage the property. Overcoming this hurdle requires the creation of a decentralized mechanism that appoints such brokers.
Lastly, real estate NFT mortgages can create additional problems for users. What happens to someone who defaults on their payment?
Any innovation to an existing industry will face issues and problems. NFTs are no exception, and their integration into the industry requires overcoming several hurdles. That said, there is significant potential in the industry too. Though it will take time for NFT real estate to reach widespread adoption, we need to remain aware and be ready to take advantage of them.
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