The use of NFTs in the traditional real estate industry seems to be gaining momentum, and the narrative is changing. Recently, leading online real estate investment platform Roofstock partnered with NFT platform Origin Protocol to tokenize properties.
Roofstock allows individuals to purchase and own real estate by simply minting the property’s NFT. This real-life utility of NFTs is made possible through ERC-721 smart contracts deployed by Roofstock’s web 3 subsidiary, Roofstock onChain. It has integrated these smart contracts into a customized marketplace designed and hosted by Origin Protocol. Ethereum’s ERC-721 on the Ethereum blockchain is a standard protocol that helps ensure that the transaction is traceable and secure.
Buyers can rest easy knowing they do not have to spend exorbitant fees on traditional real estate. Roofstock onChain allows its users to buy and sell real estate on its marketplace for 2.5% brokerage fees and 0.5% in marketplace fees.
What Are Tokenized Properties?
Tokenized properties are assets that are fragmented into digital tokens. Here, the digital token represents the totality of the underlying property, including ownership and obligations. Smart contracts make transacting tokenized properties easy and transparent as it defines the contractual specifics. The sale and transfer of the property are successful as soon as the predefined contract terms are completed.
In Roofstock’s instance, its smart contract allows buyers to mint an NFT, which transfers ownership of the property to them. The smart contract validates the actions of the buyer and seller and generates a block to verify the transaction, which is then added to the Blockchain as completed.
How Roofstock onChain Uses NFTs To Connect Traditional Real Estate To The Blockchain
The company opens a limited liability company (LLC) for each property, and the LLC takes ownership of the property. After that, Roofstock onChain tokenizes the property and mints an NFT that represents ownership of the house. Prospective buyers and investors can browse the NFTs on the NFT marketplace and purchase the home. Ownership is transferred to the buyer in a legally enforceable manner.
Roofstock, the parent and web 2 company, has also exercised due diligence by ensuring that they inspect and verify all the documentation for all tokenized properties. Buyers also have access to all the necessary information concerning the property via the NFT marketplace. They can also check the blockchain ledger to see all transactions that pertain to the property before making an informed decision.
Use Of NFTs In Traditional Real Estate
Ownership Of Property
The idea behind NFTs is that they are Non-Fungible, meaning they are unique. As such, NFTs can represent and verify the ownership of physical properties. In the real world, deeds serve this purpose, and buyers always have to employ a person or organization to authenticate it and ensure there are no liens or encumbrances on the property.
NFTs simplify this process as buyers can bypass trusted intermediaries since blockchains can verify ownership, identify liens and encumbrances, and process transactions more efficiently. Before now, there have been real-life examples of transferring ownership of a property with NFTs. Propy, a blockchain-based real estate platform, once helped TechCrunch founder Michael Arrington list and sell his apartment as tokenized property. They sold the property for over $93,000. Fun fact, Arrington had initially bought that same property from Propy in 2017 using cryptocurrency.
Fractional Ownership And Investments
One practical use of NFTs will involve fractional ownership, whereby property developers break down each property into non-fungible tokens and operate them like shares. Investors will then be allowed to purchase the token, which signifies their fractional ownership of a particular property. The idea is for these developers to use this means to raise funds, and when they are done building, investors earn a share of the money made from the sale of the property.
This use case can also apply to shared ownership. For example, a married couple purchases a home and wants to be jointly recognized as the owners. In such instances, each party will need the digital signature of the other to be able to resell the property.
In the past, some stakeholders in the industry have relied on NFTs and digital tokens to fund their projects. Entrepreneurs have gone about this in different ways, proving that there are various real-life use cases for NFTs and digital tokens.
In 2018, the owners of St. Regis Aspen sold off an 18.9% ownership stake in the resort hotel for $18 million through token sales of “Aspen Coins.” Potential investors could buy the coins with U.S dollars, Bitcoin or Ethereum. This year, OXO Living, a Bali-based property developer, created and launched its property NFT artwork collection, which features 24 properties in its portfolio.
Impact Of NFTs On Traditional Real Estate
NFTs contain smart contracts which automate these real estate transactions and make purchasing real estate faster and more affordable. Below are some impacts that NFTs have on the Traditional Real Estate Industry:
Ownership Is Irrefutable
Through the Blockchain’s public ledger, it is possible to review transactions and determine who owns the property. The buyer can check investments, liens, encumbrances, and other actions taken on the property. Blockchain Technology also makes it possible to review every piece of information that could help a potential buyer make an informed decision as to whether or not to purchase the NFT property.
Purchase Is Easier, More Transparent And Affordable
It is easier and more affordable to purchase Real Estate assets with NFTs. Traditionally, buying a property can involve a lot of bureaucracy and take weeks or even months to complete. A Blockchain-based system eliminates the need for any paperwork. Furthermore, smart contracts eliminate the need for intermediaries when purchasing a property, making the process more transparent and affordable. Buyers do not have to worry about paying the traditional exorbitant sellers’ fees, and the process also removes any unfair deals.
Smart Contracts Are More Reliable
Usually, buyers have to rely on different professionals to handle several aspects of the purchase. However, smart contracts serve multipurpose functions. It can trigger various automated actions for payments, commissions, maintenance, and more. Automation makes everything more straightforward and secure.
Provide Liquidity For The Market
Fractionalized ownership allows investors to quickly sell their NFTs when needed without having to sell the whole property at once. The only thing that occurs in this instance is a swift change of ownership. Selling Property NFTs can be likened to how NFT traders trade their jpegs currently. The only difference is that, as a buyer, you are gaining a stake in the physical property.
NFTs also provide developers with more funds for their building projects. Depending on their operations, real estate platforms can create an NFT collection like OXO Living to raise more funds for its projects or sell shares in a property through investors minting its NFT collection.
Real Estate Investment Made Easy
Before now, real estate investments were considered a venture in which only the elites dabble. However, Real-Estate NFTs provide an opportunity for small-scale investors. Tokenization has broken large assets into smaller pieces, making them more accessible and affordable for interested parties.
Concerns Surrounding NFTs In Real Estate
Like any emerging technology, the use of NFTs in Real Estate has its concerns. Below are some of the limitations:
Smart Contract Security
Blockchains are fairly secure. However, smart contract security has been a recurring issue in the web 3 space. Various hacks have been targeted at the code of smart contracts, which has led to huge losses of sums by different platforms. Therefore, Real-Estate platforms must diligently audit their smart contracts to prevent buyers or investors from losing their assets.
Furthermore, property owners and investors must be careful to avoid clicking phishing links that could drain their wallets and cause them to lose their NFTs.
Real Estate regulators have no idea how blockchain technology works, which makes it difficult to create regulations that guide such contractual relationships. Also, no well-established laws recognize the transfer of ownership through NFTs. These Regulatory and legal uncertainties make it harder for investors to invest in the use of NFTs in the industry.
Notwithstanding, there is no doubt about how much impact NFTs and Blockchain Technology can have on the real estate industry. Also, certain aspects of Decentralized Finance (DeFi) can play a major role in the tokenized real estate market, especially when integrated with NFTs and digital tokens. For example, NFT holders could use their NFTs as collateral to purchase or invest in real estate, or token holders of a real estate-backed coin could earn interest on pending real estate offers on an NFT marketplace.
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