How Does NFT Technology Affect the Real Estate Industry?

/ By / Real Estate

If you scroll through the news feed for crypto markets, you will hit a piece of news on NFT every other hour. Crypto, which was just a concept for a long time, has slowly slithered its way into the mainstream markets. A lot of industries are claiming their spots in the crypto market.

There has been a fast-paced growth from the news on companies embracing crypto tokens for payments to NFTs ruling the media and art world. It looks like real estate didn’t wait to join the club. If you look at the real estate industry, especially the commercial one, they are slowly honoring the power of NFTs and looking for opportunities.

Before we understand how NFTs can redefine the real estate industry, we should look at NFTs in general and how they work in the real estate industry.

NFT

What is an NFT?

Non-fungible Token (NFT) is a digital asset for real-world tangible objects. For instance, you create art, and you can sell it as an NFT. While people can still access the art for free, the NFT will ensure that the rights to the piece are with the owner.

Similarly, there are tokens for music, games, and videos. The token gives ownership to the person who has bought it. Akin to the real world, the owner can buy/sell the tokens as they will.

NFTs come with a unique code that helps identify them. One of the most critical differences between cryptocurrency and NFT is that you cannot trade NFTs for another. They come with a unique code making them difficult to sell.

What is NFT in Real-estate?

The NFT refers to the digital token you can attach to a property when you are in the real estate industry. This is stored in the Blockchain ledger.

Let’s talk about physical documents and papers. You might lose it, or there is a chance someone else might have a similar record made. That could result in challenges when you have to prove your right to ownership of the property or land. However, this risk is reduced when you use the digital token.

However, when working on NFTs for real estate, you are inherently working on a rather complex structure. There are too many facets involved, which you will need to consider. It could technically involve tokenizing a fraction of the entire asset.

Fractional Ownership

This is one of the many ways you can use NFT in real estate. You can create tokens for the property and sell them to multiple people. Each person would own a fraction of the property. They can earn from the rental income, sell their fraction, or even profit from this property. It is like co-ownership through tokens, which can help avoid middlemen.

Entire Asset

In this case, the sale deed for the property is converted into a digital token. The NFT will help regulate the policies for the real estate properties you own.

However, when you try converting the entire asset into a token, you might need to abide by the industry’s functions and regulations.

How do NFTs Work in Real Estate?

You face some challenges when you convert your real estate property into NFT. However, it is important to note how this token works for the particular industry.

Here are the steps you need to follow for creating an NFT for the real estate space

  1. Prepare the property for creating an NFT. This involves identifying the legal processes and knowing the regulations for the particular property. Your real estate space should be in the legal and regulatory headspace to be converted into a token.
  2. You will need legal counsel with knowledge of smart contracts and Blockchain. They will be able to help you know what aspects of Blockchain legalities and securities need to be considered.
  3. Your next step is to mint the NFT by adding descriptive and legal data concerning the property. You will need to create an intelligent contract around the token before minting. You can also mint by uploading an image file.
  4. With this, the NFT is ready. It contains all the legal paperwork, disclosures, and reports necessary to provide ownership proof. Whoever purchases the token owns the property (partial or entire), depending on the type of ownership offered.

You have now created the NFT. It is time to get more people to buy the NFT.

  • Enter the NFT details to the marketplace so that you can create the asset
  • Several buyers participate and bid for a single token. Whoever wins the bid will be the owner of the token. They can pay using fiat money or cryptocurrency.
  • The NFT is transferred to the buyer’s wallet when they complete the payment. At this point, the buyer will need to complete the paperwork to ensure the token belongs to them.

It is now necessary to note how the NFTs work in the marketplace.

  • The fractional ownership tokens are similar to your stocks traded at the market. When you invest in FO tokens, it is more like buying a company’s share. You will receive the profits according to your stake in the token.
  • Like the shares, you can also sell the tokens when you want and get money. For example, in some cases, with crowdfunding platforms, you will need to hold the tokens for a brief period before you are eligible to sell them.

How to Use Real Estate NFT for Loans?

Mortgages are standard when you seek loans. Real estate NFTs can be used to avail loans as well. You can mortgage your NFT against the amount you desire from the Blockchain.

  1. The NFT becomes collateral for the liquidity you seek from the marketplace.
  2. You can gain liquidity for the pre-defined period from the lender.
  3. When you repay the loan, you gain access to your collateral (NFT)

There are several platforms where you can get Ethereum loans against your tokens. However, the biggest challenge in this scenario appears when you seek a loan at a time when you are still paying mortgages for the property.

Top Benefits of NFT in Real Estate

  • The most significant advantage of using NFT for real estate would be the proof of ownership. As discussed earlier, you can lose ownership documents. There are several frauds reported concerning these documents. If you need to prove that the property belongs to you, it must be through a validated source.

NFTs help people trace back the roots of the real estate property and can determine the actual owners. It will seize opportunities for fraud and ensure proper retrieval.

  • When you need to transfer the property to another person, it becomes more accessible with the NFTs. You don’t need to go through the whole documentation process and intense paperwork, which was the need for physical documents. You can transfer the token ownership within minutes. This ease of transfer and accessibility of documents makes it a winning solution.
  • When you convert your assets into NFTs, you are securing your property. You are reducing the chances of fraudulent practices and transfers. Blockchain policies regulate this, ensuring credible and transparent transactions that bolster trust in the system.

Challenges of NFT in Real Estate

As with any new technology, NFT has its own set of setbacks that can make it inefficient for the end-users.

  1. People are still wary of using NFTs. They are not entirely sure whether this technology would work, so there are fewer takers in the market.
  2. Digital transformation has been slow yet well-strategized for the real estate industry. As a result, end customers are not entirely sure if this technology would help or hinder
  3. There are a lot of title and family-owned companies in the real estate industry. They have been working using traditional methods and tools. It is tough to change the mindset and make them adapt to this transition.

As a result, these tokens are not embraced by large companies.

Conclusion

At this moment, NFT real estate is in its nascent stage. The market is adapting to this new technology, and currently, many physical and digital assets are being converted to NFTs.

You can currently sell an entire unit or a part of the whole unit as an NFT. There will be plenty of commercial and residential real estate activities that will be motivated by NFTs.

As with any other technology, you should define the technology’s regulations and policies. With the power of Blockchain and the secure way NFTs work, it will transform the industry and offer great solutions.

There is a road to opportunities if the NFT is implemented strategically in your real estate property.

Author Bio: Hardik has been working with Expert App Devs an India-based professional mobile app development company. Expert App Devs provide end-to-end mobile and IoT solutions as per the client’s business requirements.

Keyword: – Expert App Devs

Hyperlink: – https://www.expertappdevs.com/

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