Crypto Real Estate - A New Future For Investing?
With digitalisation progressing and the frequency of digital transactions done via cryptocurrencies and blockchain increasing, digital currency in the real estate market might be a game changer, with the ability to improve access to homeownership and streamline the buying process. The security of cryptocurrency transactions is a major reason why many people are advocating for its inclusion in the real estate industry. In contrast to records kept by a centralised authority such as the government, cryptocurrency payments allow transactions to be validated and records to be kept by a decentralised system employing encrypted databases. Many individuals are disappointed with the traditional real estate market because of its time-consuming transaction methods; however, cryptocurrency transactions may complete the homebuying experience in a few clicks, which is a very welcome addition for investors trying to quickly build their portfolio. One of the most serious issues with the traditional real estate market is the possibility of fraud. According to the FBI, more than 11,578 victims reported real estate or rental fraud in 2021. The most important safety feature in cryptocurrency transactions is anonymity. While crypto transactions are public, the individuals or businesses involved can remain completely anonymous, offering the strongest layer of protection against potential fraud.
Transactions can be completed in two ways:
Direct transactions with the seller – Some property owners are completely engaged in the world of cryptocurrencies and are content with using cryptocurrency as their preferred way of negotiation. Each cryptocurrency has its own set of codes; in order to complete purchases, you must exchange money for cryptocurrency. Blockchain-based ledgers facilitate cryptocurrency transactions by confirming their value, organising and documenting transactions, and performing value conversions.
Using a third-party vendor – In some cases, the seller may require the buyer to convert their cryptocurrency into their nation's currency in order to complete the transaction. Third-party vendors finalize this process by converting the buyer's crypto into real currency, which is then put into the seller's bank account. The vendor then invoices the buyer, who will pay with their cryptocurrency wallet.
Real estate tokenisation opens up new potential for fractional ownership and investment, and it checks all the boxes needed to push the boundaries of a traditional industry in order to develop a new digitally orientated approach of purchasing property.
This is the process of dividing traditional assets like real estate into multiple digital tokens that can be traded on a blockchain. This makes it easier for people to invest in and trade these assets, while also making the market more liquid. In real estate, this is referred to as property fractionalisation using tokens kept on a blockchain. This allows investors to directly own a portion of a token's real-estate asset without purchasing or managing the full property. As a result, the diversification of an investor's portfolio can be broadened through this fractional ownership technique, which allows for the capacity to create liquidity in the real estate market. Property issuers will also have a larger pool of investors to choose from. Real estate tokenisation provides a low barrier to entry for many small-scale investors. In contrast to traditional real estate, which requires much more upfront cash, lower minimums and smaller investment amounts can be utilised to profit from potentially high returns. Equity release in real estate tokenisation is simple, as some blockchain platforms allow you to tokenise your own property to generate cash. This would enable you to free up equity, raise funds, and buy another property to expand your portfolio. One of the most significant advantages of tokenisation is the removal of geographical restrictions in the world of investment. This enables investors to buy properties on the other side of the globe and participate in rental opportunities or housing estates anywhere in the world.
Real estate, along with hedge funds and private equity, has historically been one of the most illiquid asset types. Real estate frequently necessitates substantial planning, economic restraints, property management, and legal expertise. According to Cointelegraph, real estate still accounts for 89% of total securities, but commercial real estate is currently at 3%, up from 2% a few months ago. Trading fractionalised properties provides for the development of yield without the legal and time-consuming ramifications of traditional real estate. The concept of tokenisation has a tremendous impact on the real estate market. The trading of digital assets and tokenized real estate shares has the potential to bring forth significant change. Blockchain technology has the potential to change the way the real estate industry operates. The lower entry barrier will allow a larger pool of investors and substantial amounts of capital to enter.
The World Wide Web is home to several centralised bodies with a stronghold on many large sectors of the web, choosing what should and should not be permitted. This is portrayed as huge technology companies monopolising the web. Web3 is a decentralised platform that is built, run, and owned by its users, putting power in the hands of individuals rather than corporations. Instead of depending on banks and payment processors, Web3's payment infrastructure uses cryptocurrencies to spend and send money. Ownership is the driving force behind Web3's features; it gives you direct ownership of your digital assets via non-fungible tokens (NFTs).
In terms of real estate, Web3 enables the purchase of real estate in the virtual world. Real estate NFTs allow investors to purchase land. When all relevant ownership documents for the property is minted as an NFT, the process of turning a virtual property into an NFT is complete. When the NFT is purchased, ownership is transferred to the buyer instantaneously without the need for an intermediary or time limits, making the entire process cheaper, faster, and more secure than traditional real estate transactions. While it is not yet feasible to transfer physical property paperwork onto NFTs, the launch of virtual property investment provides a blueprint for future implementation of physical property trading via NFTs.
Decentraland is the most popular virtual place for digital assets right now. The goal of this digital universe is to purchase NFT virtual places known as "land." You can do whatever you want with this land after you own it, such as build structures or create art. This land could alternatively be held as an investment or leased to others; its price will vary depending on the metaverse's organic growth. The price of virtual land is usually determined by its size and proximity to the metaverse's center. MANA, a fungible ERC20 cryptocurrency token, is the cryptocurrency used by Decentraland for transactions. According to Benzinga, a piece of virtual land recently sold on Decentraland for 15,000 MANA, which equals to $10,704 USD.
The continual development of digital worlds and virtual reality could be the key to combining physical and digital real estate in order to establish an infrastructure in which both can be exchanged or purchased easily and securely using blockchain and cryptocurrency. We may soon see the possibility of exchanging virtual property for physical property or vice versa. With the introduction of cryptocurrency payments for real estate and virtual real estate NFTs, the first steps have already been taken. In November 2021, the first commercial property in New York was listed on the property market exclusively for Bitcoin at $29 million USD according to Yahoo Finance. As digitisation progresses, so will the metaverse, and cryptocurrency will eventually be employed as a key payment mechanism for property investing.
Novyy is a Community Investing Platform that enables individuals to invest in UK Buy-To-Let, Leading Real Estate Private Equity Funds, and Premium Homes across Europe with as little as £10,000. Novyy users enjoy seamless digital investing like never before, in opportunities that were earlier unavailable to most individuals. This piece should not be construed as tax advice. Please refer to your tax advisor before making any decisions on owning properties through Limited Companies.