Digitizing Property Ownership: Harnessing NFTs for Real Estate Ownership

NFTs were introduced to the world as a blockchain application back in 2021. The initial NFTs were pretty much funny digital artworks that were tokenized by people and put in a NFT marketplace for sale. Reasonably speaking, the initial understanding of NFT was not serious enough, as many purposeless NFTs were in the market. However, as the blockchain application evolves, people become excited about how NFTs work and what changes they are capable of making in our world and day to day life. NFTs are now making significant changes to different markets and industries. The supply chain, medicine and healthcare, banking and finance, online gaming, music and entertainment and more importantly the real estate sector, are just a few out of many other sectors that are witnessing revolutionary changes  by blockchain in general and NFTs in particular.

How NFT Revolutionizes the Real Estate Sector

Despite the popularity of the real estate market for investors, the sector suffers from some traditional risks and issues like illiquidity and entry barrier for investors with less money in hand. In addition to the high price of valuable properties, there are additional costs such as bank fees, broker charges, insurance cost, etc. that are payable by buyers. Besides, the price of valuable property is out of most investors’ capability these days, isn’t it? Transformative NFT applications including making real estate fractional ownership possible has provided great advantages to the real estate sector. Today, thanks to blockchain technology, small-scale investors can invest in a fraction of a valuable property and avoid additional costs such as bank, brokers and insurance fees, as smart contracts take care of the whole procedure rather than human beings. As such, NFT in real estate brings more liquidity, transparency as well as cost efficiency.

The process of tokenizing a property

It goes without saying that the first step is to buy a property and secure your ownership. As the next step, you need to select the blockchain network through which you want to tokenize your property. Based on your project, you must select a blockchain platform like Ethereum, Ripple, Tezos, etc. that suits your needs best. Once your ownership is verified, you should develop your project’s smart contacts. All terms and conditions, prerequisite, compliances, etc. must be programmed within your smart contracts. Now it’s time to develop an asset management app for  investors  to hold, transfer and trade the tokens. You are now ready to mint and distribute your property-backed NFTs. Every single NFT will have a unique ID that is tied to the owner’s name and is stored within the blockchain ledger. That is how the ownership of the NFTs is secured and guaranteed. 

Property-Backed NFT Risks

Despite the great advantages of property NFTs, it associates with some serious risks that you as an investor must be aware of. Here are the main risks that you must consider before making any investment decision.

• Regulatory

The blockchain has not been recognized as an admissible record yet. Besides, despite the efforts that some governments are making to legislate the blockchain and its applications, it is at its early days. There are no robust and straightforward regulations for blockchain, NFT and ownership within the blockchain to safeguard investors. However, the UAE government is trying hard to develop UAE regulation on asset tokenization. That makes UAE a perfect place for asset tokenization and creates an endless number of opportunities for asset-backed NFT investors from all around the world. 

• Security

Blockchain is a reasonably secure technology that stores data within a shared ledger, so data can not be changed or replicated. However, there is a history of blockchains that were hacked before. The probability is quite low, but if it happens again, an NFT real estate can be stolen! Besides, there is always a possibility that someone loses their private key. In that case, they can lose their property NFT! Furthermore, the blockchain is a popular target for cyber criminals and vulnerable activities. Considering the lack of appropriate regulation, the risk of losing money in scam projects is significant.

Conclusion

The NFT landscape in 2024 looks bright and growing in general and in the real estate sector in particular. Property-backed NFTs bring a lot of advantages to the real estate market. Better liquidity, a more efficient market, wider range of investors, transparency and cost efficiency are the great values that NFTs would add to the real estate market. More importantly, due to the immutability of the blockchain shared ledger, the ownership of the property is reasonably secured. However, the main risk associated with property NFT is the regulatory risk. Even though the security risk is quit low, it is still viable. Hence, in the absence of robust regulations to safeguard investors’ money, it becomes serious and considerable.

As such, it is highly recommended to invest in legitimate projects. For the real estate NFT project, you can check with the local government to ensure the project legitimacy.