Thanks to non-fungible tokens (NFTs) and blockchain technology, they are changing the way we think about asset ownership in both the physical and digital worlds. An NFT, maintained on a blockchain ledger, reflects ownership of an item, whether real or virtual. It has significantly increased in popularity as a means to establish authenticity and transfer different rights in a variety of industries, including art, gaming, and entertainment. As a result, entrepreneurs are now exploring NFT development services and use cases for new markets like real estate for transformation and value creation.
They seek to take advantage of NFT solutions and blockchain in the real estate industry. More than ever, businesses now are paying attention to use cases like virtual land in the metaverse or fractional real estate development with blockchain and NFT.
In this quick guide, let's take a closer look at NFT use cases in real estate and how they can prove to be transformative for stakeholders.
Firstly, let's understand why we need NFT in real estate in the first place.
Michael Arrington advertised a rental as an NFT on the Propy real estate marketplace in May 2021.
It's interesting to note that in 2017, Michael used Ethereum smart contracts to buy the same house. It was sold for more than $93,000 and is regarded as the first real estate NFT ever.
Another case was the cryptocurrency-based sale of two opulent villas in Portugal by the real estate development company Prometheus. They leverage NFTs to ensure ownership availability.
Leslie Alessandra earned $654,310 from the early February 2018 sale of a house in Gulfport, Florida. As the first home ever sold as an NFT (Non-Fungible Token) on a blockchain in the United States, that transaction changed the course of real estate.
These real-world examples of popular properties' NFT sales demonstrate the potential of NFTs for managing real estate.
Since then, a lot of people have bought and sold real estate properties with cryptocurrencies and sold them as NFTs, hinting towards a major shift in the real estate market.
Real estate NFTs are gaining popularity because they address issues like process efficiency and ownership confirmation transparency. It is similar to other assets that get tokenized as NFTs on a blockchain, like art, season tickets, carbon credits, and more.
The following are a few use cases of NFTs that stakeholders can employ in real estate to augment transformation in the opaque industry.
An inventive business idea is to convert real estate into NFTs so that users can own and trade them digitally.
Using smart contract solutions, buying or selling real estate can become instantaneous. It is because blockchain will power these transactions for NFT-backed properties.
NFTs can contribute to greater real estate liquidity in this way. Real estate is regarded as an illiquid asset since it takes a long time to sell and requires extensive paperwork and transaction procedures.
However, the tokenization of property would provide a more expansive consumer base access to the market.
LABS is a blockchain-based real estate investing platform where users may buy and sell properties.
It has become a trend in the real estate industry to fractionalize property ownership now. Homeowners can now turn their homes into an NFT that they can further divide into several tokens and make available for purchase to buyers.
By issuing tokens, homeowners can also sell a portion of their property to various investors.
These tokens are available for investors to hold onto and earn rent from.
The sale and purchase of properties electronically without a middleman become possible with NFT-based fractional property ownership solutions.
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With NFT-based mortgages, borrowers and lenders utilize NFTs to store mortgage metadata on the blockchain, including borrower data, lien information (which shows who technically owns the mortgaged property until the borrower's loan is paid off), and the transaction history of the mortgage.
Malicious actors are unable to counterfeit NFT-based mortgage documents or change crucial mortgage data because NFTs, or non-fungible tokens, are unique digital assets that users cannot copy or exchange.
As a result, compared to their paper-based equivalents, NFT-based mortgages are typically safe, protected, and error-free. As you can think, they expedite the financing process by cutting down on mountains of paperwork.
However, the absence of regulation for NFTs may be a significant issue for many purchasers and investors. Governments around the world may think about regulating and establishing some sort of legal framework for NFTs as they become more prevalent.
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Owners can sell digital land parcels on metaverse marketplaces like Decentraland and The Sandbox by tying each parcel to an NFT and documenting the transaction on blockchain networks like Ethereum.
The transaction is documented on the blockchain once a buyer acquires a virtual package, and the NFT is then transferred to the buyer's digital wallet.
When a user connects a wallet to the metaverse platform, the platform can authenticate land parcel ownership.
Additionally, if the platform is run as a decentralized autonomous organization (or DAO) that allows token holders to vote on proposals, users can also participate in governance.
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Owners of digital properties can get loans by pledging their NFTs as collateral on websites like NFTfi, which connect NFT owners with organizations with cash to invest. Once parties involved in smart contracts have met the terms, it closes the loan without any intermediaries.
Owners of NFTs can also sell smaller holdings or fractionalize their interests on platforms like Fractional and NFTx, earning interest on the asset.
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Some people might find it challenging to understand the concept of paying for virtual property.
You simply need to consider the metaverse, different NFT use cases, and the meteoric rise of digital collectibles to see the potential of NFT real estate.
NFTs have so far helped the real estate sector improve the speed, transparency, and security of corporate operations.
With the advancement of blockchain technology, it shouldn't come as a surprise that more NFT use cases will appear soon. If you have a project in mind, connect with our blockchain and NFT developers to discuss it and analyze its feasibility.