NFT's can be the next big game changer for real estate

NFT's can be the next big game changer for real estate

In a world where we are increasingly reliant on technology to interact with one another, from managing our finances to making decisions about the future of humanity- it stands to reason that real estate should be no different.

NFTs, or non-fungible tokens, are becoming increasingly popular in a variety of asset classes such as art, video games, virtual real estate, music, and so on. The real estate industry is a recent addition. In many ways, NFTs share characteristics, such as the fact that it is already a recognised digital asset, and its ability to provide fast settlements and simple transactions may propel it to the top tech choice for real estate.

What are these NFT’s?

An NFT is a digital asset that can represent actual objects such as art, music, videos, or real estate. They are purchased and sold online as one-of-a-kind digital tokens stored on a blockchain ledger. This increases the security against fraud and duplication by making the token holder the only unique owner.

How can the real estate industry benefit from tokenization?

Real estate is still largely an archaic business with slow transaction processes that affect the asset's overall liquidity process. NFT’s has the potential to make the process more efficient and cost-effective. Tokenization can greatly improve secondary market transactions by making ownership transfers quick and easy. A strong secondary digital market is not far away, and fractional investing in real estate can be revolutionised. The process could begin with

  • tokenizing the deed
  • incorporating it into the market's existing legal framework
  • instituting KYC for such NFT's (NFT's owners are typically anonymous)

In the US they are already using legal entities instead of individuals to own the property enabling transfer of ownership of the entity via NFT. This means that because the entity already owns the property title, there is no need to record it again in the relevant jurisdiction or state, saving time and money. This has the potential to be a game changer in fractional investing, where owners’ own equity in the entity that owns the property. In the coming days massive liquidity can be created in the secondary market, something that the sector is lagging behind as of now.

The millennials and Gen Z are most likely early adapters

These are the early adopters, and the NFT miners could be the next generation of brokers. Can this change the way we think about real estate transactions? Yes, I believe so. If you want to stay relevant in this industry, becoming familiar with technology is a good place to start. The internet forever altered our world; there is no turning back and we must continue forward. Properties will most likely be NFTied today or tomorrow, so aligning yourself with changing technology could be a game changer.

Propy, based in Palo Alto, launched the first real estate NFT auction, and a lot has happened since then. The first thing you notice when you visit their website is the header comment “Tech Crunch Founder, Michael Arrington’s Kyiv apartment sold in world’s first NFT Real Estate Auction!

There are two types of real estate tokenization: Entire Asset (EA) and Fractional Ownership (FO)

The FO is the popular one in use that simplifies the process, think of it as the crowdfunding digital platforms where you can buy shares only in this case you have a number of tokens representing the value of your share.

The EA is a little more complicated to create because an entire property deed must be tokenized. This is not easy to achieve because it faces regulatory challenges, which I believe will change over time. Returning to the traditional method once it has been accepted in various regulatory frameworks would be akin to purchasing a horse drawn carriage in modern times for mobility purposes.

Using NFT in the real estate industry has a lot of potential, to say the least. The fact that NFT's are non-fungible tokens with unique ownership status can't be disregarded. It has the potential to lower transaction costs, streamline administrative procedures, and shorten the time it takes to complete a deal, all while increasing secondary market liquidity. Simply put, it's more effective. For real estate financing, it can be integrated with DEFI systems.

Challenges

In the beginning, there are various hurdles that must be overcome. The usage of technology in the real estate industry has traditionally lagged behind. Until recently, virtual viewings were a relatively new phenomenon. The biggies in the industry are old school low on tech adaptability and may show resistance because of fear of losing the race with new age entrepreneurs. Large scale NFT transactions will take some time to come but change is already in the air.

About Us

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.