“NFTs can be used to buy a building, buy the air rights and buy the virtual rights of any physical space. The future is awesome!” said Tim Draper, one of the world’s most famous venture capitalists and an investor in the blockchain-based real estate company, Propy. Proving the prophecy right, there have been several developments for “virtual” real estate NFT sales like the “Mars House” that sold for USD 500K and “Superworld,” an AR-based mirror world real estate game. It did not take long before the capabilities of NFTs bled into the physical real estate markets.
Read about how “tokenizing” physical properties revolutionize the real estate industry by addressing traditional systems’ limitations.
- What Is A Real Estate NFT?
- How Are NFTs Incorporated In Real Estate?
- Tech Transformation In Real Estate
- What’s Possible Through Real Estate NFT?
- How Are Real Estate Companies Benefitting From NFT?
- Building A Complete NFT Real Estate Marketplace
- Real Estate Enters The Metaverse
What Is A Real Estate NFT?
NFTs in real estate are digital tokens that prove ownership of a property. Like the popular digital art NFTs, these are also unique tokens issued on a blockchain, and the underlying asset is virtual or physical real estate. Since the NFTs are very useful in proving ownership with their property of uniqueness, they serve the purpose of unforgeable signature in the real estate industry. This makes them an excellent option for buying and selling real estate properties.
Michael Arrington, in May 2021, listed an apartment in Ukraine as an NFT on the platform Propy. It became the first-ever real estate NFT and was sold for more than $93,000. Interestingly, Michael purchased the apartment through Ethereum smart contracts in 2017.
In another part of the world, Prometheus, A US real estate development firm, sold two luxury homes in Portugal with cryptocurrency, and the ownership was claimed through NFTs. These examples reveal the potential of NFTs yet to be fully tapped in the real estate industry.
How Are NFTs Incorporated In Real Estate?
Here’s how these NFTs will work. Before anything, there is legal preparation for selling property as an NFT. Then, the property is minted as NFT, covering all the descriptive data about the property like reports, disclosures, images, and even video. The NFT becomes the proof of ownership, and whoever owns it owns the property. The minted NFT real estate stored on a blockchain will then be sold in NFT marketplaces such as OpenSea, Gemini’s Nifty Gateway, or other NFT-based real estate marketplaces.
Related article: Legal considerations for launching an NFT marketplace
Interested buyers bid on the property and can pay using fiat or cryptocurrency, often through a third-party escrow service or smart contract created to perform escrow duties. After the seller receives the funds, the NFT is transferred to the buyer’s wallet.
Tech Transformation In Real Estate
Real estate is an age-old industry and one of the biggest contributors to the world’s economy, with a global value of over $7,196 billion. The rate of technological adaptation in this industry has lagged behind others. Mostly because of the reluctance to change the methods that have worked well in the past. But in the last few years, real estate has adopted the latest technology as investors realize the benefits.
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In 2020, the Technology and The Future of Real Estate Investment Management report developed by the University of Oxford said, 53% of real estate companies are directly investing in technology. 42% of Statista respondents acknowledged that they expect potential in Smart Building technologies, while 56% of respondents had already observed the impact of tech in real estate. Technology in real estate is being referred to as Proptech or CREtech – commercial real estate tech or RE tech – real estate tech. With the introduction of blockchain to the real estate industry, we now have RE NFT.
The real estate industry is catching up with global trends in technology by adopting the blockchain ledger. Traditional Multiple Listing Services (MLS) are being upgraded to blockchain-based databases to handle the immense rate of daily transactions. It addresses challenges like lack of transparency, the burden of paperwork, invasion by intermediaries, and others mentioned ahead.
What’s Possible Through Real Estate NFT?
Easy Ownership Transfer
A big problem in the traditional real estate market revolves around the hassles in ownership transfers. One would need to submit tons of paperwork, go through brokers, and the conventional payment processes do not make the load any lesser. Meanwhile, the NFT real estate transactions introduce a streamlined system connecting the seller to the buyer in minutes without intermediaries and with an immutable ownership deal security
Another important reason why NFTs are useful for real estate is for security. “In just a single click, cyber criminals fish out all your credentials like a bank account, customer ID, etc., in an online transaction, ” says Live Mint in a recent real estate cybercrime report. The data security and integrity of the blockchain provide higher security to sellers and buyers from such cyber frauds.
Related article: Top 10 Doubts And Questions On NFTs Answered
Co-ownership with Real Estate NFT
Through fractional NFTs, real estate can be owned in shares. Property buyers become co-owners by owning a fraction of the complete NFT that represents the real estate. Once again, traditionally, sharing a property requires time and effort and a lot of trips to the registrar’s office. Fractional NFTs are brilliant when family members want to co-own their common property.
Simplified loans and rentals
NFTs can also simplify the process of loans and rentals on properties. The shared ownership feature of NFTs can be used for mortgages. The owner can apply for a loan from an NFT lending platform using these NFTs. They then can mortgage their NFT to borrow.
The very nature of real estate makes it perfect to be a tokenized digital asset. It is immovable and can be easily validated as collateral by third parties with blockchain-based claims.
How Are Real Estate Companies Benefitting From NFT?
Increased real estate liquidity and ease of crowdfunding
Tokenization makes it easier to identify the number of shares for a real estate asset and aids in faster property sales. The barriers to overseas investment become manageable for ordinary property investors as NFT real estate on a blockchain enables them to trade like on a stock exchange. It will also increase the liquidity of commercial property markets. Imbrex is a blockchain startup that has followed the stock market pattern using Ethereum to run an extensive, rotating property market where buyers and sellers can trade for free.
Digitization of Contracts
According to Softermi, more than 55% of renters are confused about the security of their rental agreement. Signing the rental documents also takes a long time in most jurisdictions. With NFT that represent a real estate property, and blockchain technologies, a smart contract can replace physical documents, and e-signing and other features make it even more convenient and cost-effective. All parties involved in the transaction can trust the process equally. Chromaway has partnered with Telia, a Swedish telecommunications giant, to work on digitizing property contracts authenticated by blockchain security measures.
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Transparent Data Tracking
Because of the blockchain ledger technology, all transaction history is readily available to be analyzed by anyone. This aids in better decision-making as real-time data on ownership and others are constantly updated.
Reduced fraud in payments
Extensive documentation and the need for intermediaries were a necessity in the real estate industry earlier. This has led to slow, expensive, corrupted payments and many underhanded happenings. Blockchain leverages streamlined payments in real estate transactions. It also ensures that both the parties involved in a transaction have the required funds for the same. All data will be stored such that either party can reference the history whenever they want to.
Building A Complete Real Estate NFT Marketplace
Using a real estate NFT marketplace, customers must be able to browse, buy and sell NFTs. Meanwhile, the admins of the platform must manage the marketplace operation. So the basic architecture of a the marketplace for these NFTs can be split into a Customer module and an Admin module.
Real Estate NFT Marketplace
- Functionalities for customers
Registration: Sign up and log in
The users should have convenient options to register and signup through various means. Multiple options to reveal the identity of customers, such as through emails or social media accounts, can be provided. The customer module should also have a log-in process to repeatedly let users into their accounts.
Purchase real estate NFT assets
A dynamic option to search for assets with enough filters and sorting for customized search will make it easier for customers to decide. An analytics system that helps price comparison and provides market updates is always appreciated as a great add-on. General features of a purchase interface also include view, select and add to cart options.
You can also have the auction function for NFTs on your platform. In that case, the platform should have the option to view assets listed, their current bid rate, duration, and the option to place a bid. Additionally, there can also be an option to view the price information of the highest bid made and the history of all the bids placed by the user.
Crypto wallet integration
Users must be able to integrate their crypto wallets with the marketplace to buy and sell these NFTs.
Users are likely to encounter troubles with the marketplace. Providing customer support throughout the day can increase the credibility and trustworthiness of your platform. You can add access to third-party integrations, a ‘chat with as support agent’ option, and more.
- Functionalities for admins
The admins must have access to view all the assets listed, profiles, and transaction history on the platform. They must be able to actively create and remove profiles.
Under asset management, the admin must be able to view the details associated with every asset listed on the platform. They must also be able to edit or remove them. Other functionalities include listing for auction, setting the time frame, listing privately for selected users, and adding details of owners of these NFTs, which represent the real estate.
In addition, admins also need user analytics to monitor the success of the marketplace platform.
Some popular recommendations for tech stacks include:
Solidity: a contract-oriented, high-level language for implementing smart contracts.
PHP: a general-purpose scripting language especially suited to web development.
MySQL: a relational database management system used for many purposes, including data warehousing, e-commerce, and logging applications.
scripts server-side to produce a dynamic web page.
Security Measures in real estate NFT Marketplace
The marketplace must evoke confidentiality to protect users against disclosing sensitive information to unauthorized entities. The marketplace’s integrity lies in ensuring that its data is reliable and accurate. An authorized person must check the data and the platform for its functionality and make authorized changes.
Other general security measures include:
Guarding against disruption
This can be enforced and captured as a part of the Service Level Agreement (SLA) components like measurement of Maximum Tolerable Downtown Time [MTD] and Recovery Time Objective [RTO].
It detects when an unauthorized user makes a change or when an authorized User makes an unauthorized change.
Ensuring successful user/process Authentication, Session Identified (ID) tracks the
authenticated state of the platform. To avoid Sensitive Data leakage, measures like Initialization and Disposal of Global Variables, Hashing/Encryption of Sensitive data, etc., should be clearly defined.
Real Estate Enters The Metaverse
Over the last few years, real estate has actively absorbed technological disruptions. The sector is expanding to more than just physical entities as virtual land deals are gaining momentum significantly. The metaverse is surging with popularity as the tech adoption rate is accelerating globally. Real estate in the metaverse is the new talk of the town!
Real estate in the metaverse is a virtual ecosystem replicating real-world conditions. It is a decentralized computing platform and virtual reality experience containing various digital realms. It combines augmented reality, virtual reality, and video technologies to create a digital space where users can interact, play, and communicate virtually. The price of virtual real estate is based upon most of the same factors as determining the value of a piece of real estate, such as location, lot size, existing structures, and demand.
Real estate in the metaverse can be used as virtual offices, campuses, landscapes, and more. Property owners can also advertise their sellings in the metaverse. Immersive events such as virtual concerts are also conducted on land slots in the metaverse. Additionally, a prominent use case lies in the management of digital properties. The digital asset could be rented for entertainment purposes or business events. Metaverse also supports brokering activity by connecting buyers and sellers of virtual real estate, providing them with professional consulting services, and charging fees.
Real Estate NFT In The Future
Parallel to physical real estate, the virtual world of the metaverse is also getting into NFTs for property sales. According to Propy, the real estate marketplaces in the metaverse can grow to include physical properties known as “blended” NFTs. Soon there will be expert agents for trading virtual landscapes. These NFT settlements using blockchain will significantly reduce the cyber crimes associated with the real estate market.
Moreover, the NFT miners will have to package all data such as title reports, inspection reports, disclosures, etc. Thus, in the future, the miners who help tokenize properties into NFTs can earn royalty fees automatically paid to their digital wallets when the NFTs are transacted. In The future, we can expect these NFTs to be adopted not just by the tech-savvy but also by older customers solely because it is just too convenient.