Anticipating the Future of NFTs in Real Estate: Trends and Predictions

NFT as a blockchain application raised the attention of people a couple of years ago. In its early days, it was pretty much about tokenizing digital arts and collectibles across a blockchain network. As the application evolved, new concepts were introduced to the market. RWA or Real World Asset is one of the revolutionary concepts that is about to change the landscape of many markets and industries. RWA refers to tokenizing tangible assets and converting them to one or multiple NFT. Almost all physical assets in our world can now be tokenized in a blockchain network. A piece of diamond, a barrel of oil or a luxurious apartment in Dubai Marina can be divided in equal shares and then converted to NFT. The first and most important benefit of asset-backed NFT is making fractional ownership possible, which is a good thing for the real estate sector. 

What does NFT in Real Estate mean?

Using NFT in the real estate market means tokenizing a property by converting it to NFTs across a blockchain network. As an example for your better understanding, think of a luxurious apartment in DownTown Dubai which costs USD 3,000,000. In the traditional way of buying such a property, people must have access to a large amount of money to be able to do so. Here is where Real Estate NFT can add value. Thanks to blockchain technology, it is now possible to convert such an apartment to say 1,000 NFTs. Every single NFT represents 1/1000 of that apartment, so the buyer of an NFT is the owner of 1/1000 of that  property in Dubai. Generally speaking, NFT in real estate is to convert a real estate property to multiple NFTs to take advantage of the benefits associated with property tokenization that we will go through shortly.

Real Estate NFT Pros and Cons

Benefits

1- Improves the Real Estate Market Liquidity

The real estate sector has traditionally been considered as an illiquid market. High prices along with geographical limitations have been the main reasons. NFT in real estate makes fractional ownership possible, so more small-scale investors will enter into the market. Besides, the NFT marketplace is borderless, so the geographical limitations become inapplicable.

2- Increases the Market Transparency

All data that is stored in blockchain is available to the public. That is the same for real estate NFTs. Data about the ownership, authenticity, trade history and money exchange will be securely stored in the blockchain ledger. Due to the blockchain immutability nature, data can not be changed or replicated. As such, people have access to all types of data, when deciding to invest in a property-backed NFT.

3- Makes the Real Estate Market more Efficient

Smart contracts that are built-in programs in the blockchain network take care of executing terms and conditions as well as money exchange and ownership transfer. As such, there is no need for investors to pay for intermediary services providers like attorneys, banks and brokers. Besides, the NFT market is open 24/365 and the transactions are executed instantly.

Risks

The major risk associated with the NFTs is lack of regulation. The blockchain applications are not well-regulated yet. Even though some countries like the USA and UAE and some others are moving toward the legislation process, it is still in its early days. Insufficient regulation for real estate NFT can cause serious concerns in terms of safeguarding the investors’ money. Besides, transborder transactions may cause taxation complications due to different taxation regulations. For further information on UAE regulation on asset tokenization, you may follow the link.

Next concern about real estate NFT is the security risk. Even though the blockchain network is immutable and reasonably safe, there is still a chance for it to be hacked. Besides, the legitimacy of the real estate NFT project and how to make sure that the NFT is really backed by a real estate property is another issue that the market is now facing. 

How the Future Looks Like for Real Estate NFTs?

Despite the serious challenges that blockchain in general and real estate NFT in particular are facing, the future looks bright! It seems that the technology has found its way and is rising in popularity due to several benefits it offers. Even though the investment in real estate NFT is associated with some serious risks, more investors are keen to get information and step in. It is only a matter of time before seeing real estate to be funded by cryptocurrency and blockchain becomes the main platform that real estate transactions are recorded in. Considering the governments of developed countries are working on legislating the blockchain and its applications, the regulatory risk will be mitigated in the near future. 

In the meantime, investors must be vigilant to invest in legitimate projects that are approved by the local government.