Not many people would’ve imagined that a type of digital token that emerged in the early 2010s as memes, crypto cards, and collectibles could be used to sell real-world apartments in a much more convenient way than traditional real estate procedures.
Or perhaps that real estate companies would invest in metaverse projects and even buy virtual plots of land to build their businesses.
NFTs provide users ownership and allows them to verify the provenance and authenticity of pretty much anything. The idea of tokenizing real-world properties has been in the mind of developers for a few years, and it seems it’s coming to fruition in 2022. Here we’ll explore how NFTs could help improve the real estate industry —and even reshape it.
What are Real Estate NFTs?
Traditionally, real estate is a market with a high barrier to entry, and has certain pain points: slow processes, too many intermediaries (lawyers, auditors, banks, estate agents) that add up to the expenses, management costs and paperwork —the list is long.
Real estate NFTs can be virtual or physical properties bought and sold as non-fungible tokens, and smart contracts, a type of digital agreement in a blockchain ecosystem, are the backbone. Smart contracts are capable of automating what it’s otherwise a burdensome process by providing and verifying the ownership and rights of a property. This opens the pathway for a peer-to-peer operation that accelerates the transfer of a property —inside and outside the metaverse.
Usefulness of NFTs in Real-World Properties
We can take as an example of real world properties sold as NFTs the founder of TechCrunch, Michale Arrington, who sold his Kyiv apartment as an NFT, showcasing the power of blockchain technology in the industry. The auction was carried out by Propy, a real estate NFT marketplace.
According to Propy, the apartment’s ownership was held and recorded in Ukraine as a US LLC (limited liability company). Propy held an auction, and the winner won the NFT that gives the rights to the LLC.
Jared Kenna, founder of 20mission and Traderhill Exchange (one of earliest BtC exchanges in June 2011) owns a San-Francisco apartment which he tokenized all the rooms and rents them out to developers, entrepreneurs, and artists for $1 a month for 75 years for each particular room. Kenna built the token with the proper identifiable information tied up to the lease agreement, so whoever possesses the token would have a bearer asset enforceable by contract.
But there’s more than just buying and selling property as NFTs. For example, NFTs can be used for an investment approach called fractional property; one part of a property, say a house, can be put up for sale or rented to average investors who otherwise might not have the budget to enter the real estate market.
The Rise of the Metaverse and Virtual Property
Investors, companies, institutions and even governments often consider the metaverse as an uncharted sea where billions of dollars can be generated by building virtual economies accessible by anyone with access to the internet.
The metaverse is composed of platforms that have built their own digital ecosystem or are investing in this space, such as Decentraland, The Sandbox, Microsoft, Meta, Epic Games, and more. This market now has an estimated size of $38.85 billion, and it’s projected to reach over $700 billion by 2030.
Decentraland, The Sandbox, Axie Infinity, Otherside and more metaverse ecosystems have become key players in the mission to spread NFT real estate to mass consumers and traditional companies. At least $1.9 billion worth of plots of land sales have been recorded mostly in Decentraland and three other major metaverses: TCG World, Axie Infinity, and Voxels.
Source: RubyHome
Gross Metaverse Product
The Dubai Metaverse Assembly is UAE’s project with the goal of creating over 40,000 jobs in a new virtual economy accessible to everyone. This new metaverse-based economy will have a new economic output metric called gross metaverse product.
“Gross metaverse product will be able to create billions of dollars in returns from Dubai without people being physically in the emirate but experiencing it in the metaverse,” said the Chairman of the Dubai Chamber of Digital Economy, Al Olama.
In early October, UAE2s Minister of economy, Abulla bin Touq Al Marri announced a building inside the metaverse which is an exact replica of the Ministry of Economy in Ab Dhabi, offering the same services for its users.
But the UAE is trailing behind China and its Metaverse Industry Committee, a group of scientists and technology companies working to bring the metaverse to Chinese citizens and open new horizons for their economy. South Korea and Japan have already invested hundreds of millions of dollars in developing their own metaverses. As these projects evolve, we could expect a larger money influx to real estate NFTs in the future.
Pros and Cons of Real Estate NFTs
The pros and cons of real estate NFTs boil down to the intrinsic pros and cons of NFTs and blockchain technology and platforms at core —and some regulatory hurdles. Here’s some food for thought:
- NFTs automate simple and complex real estate procedures, eliminating intermediaries, hefty paperwork, cost management, etc.
- Each property bought represents a token stored on the blockchain, allowing investors to check the provenance and current ownership of the property.
- However, we might find certain regulatory roadblocks. For example, the IRS stated that transactions involving digital assets, including NFT sales are taxable by law just like in any other property.
- Regulatory laws will vary depending on the jurisdiction. It’s hard to determine what laws will apply compared to traditional real estate as the groundwork is barely being prepared and determined by regulatory agencies worldwide —or will probably never consider it.
- Crypto and blockchain —and by extension all things related to web3— still have pain spots, like overreliance on a single blockchain platform like Ethereum, asset illiquidity, extreme volatility, and blockchain apps, if not properly audited, are subject to scammers and hackers.
Real Estate NFT Companies
- Decentraland
Decentraland is an Ethereum-based metaverse game created in 2015 in which users can interact socially and economically with each other in a shared landscape. Users can use MANA, the platform’s native token, to buy LAND, which is an NFT based on the ERC-1175 technical standard.
Decentraland has netted nearly $450 million in real estate NFT sales, currently the highest-selling NFT platform.
- TCG World
TCG World is a new player in the metaverse space, launched in May 2022. It quickly became one of the highest-selling real estate NFT metaverses. In fact, TCG has the record for the biggest real estate transactions in 2022 —$5 million for a real estate transaction by Curzio Research for 19 commercial properties in TCG World.
- The Sandbox
The Sandbox is one of the earliest virtual worlds built on Ethereum —it’s basically the Roblox of crypto in which players can build, own, and monetize their creations, such as merchandise and in-game items as NFTs within the platform.
One of the earliest adopters of the project is Atari, which sold land worth roughly $4.5 million.
- Crypto voxels
Cryptovoxels is one of Decentraland’s main competitors. In this virtual reality world, users can acquire and sell properties called Cryptovoxels Parcel (CVPA), which are NFTs on the Ethereum blockchain. This virtual world features real-life infrastructure such as buildings, roads, houses, and even art galleries for users who want to showcase their NFTs.
- Polka City
Polka City takes things a bit further by allowing users to leverage their locations and properties as contract-based NFTs that can generate income paid in the platform’s native token, POLC. These properties can be energy stations, services, taxis, hotels, shopping centers, and more.
Closing Thoughts – Future of Real Estate NFTs
By now, it should be clear that NFTs have a wider use case than just entertainment and art. It can greatly aid the real estate market and other industries as well, specially the supply chain, ticketing, and healthcare. However, we might have to wait a few years in order to see mainstream adoption for real estate NFTs —and what challenges we might face here onwards.
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