Harnessing NFTs in Property Development: Crowdfunding, Financing, and Community Engagement

NFT as an application of the blockchain technology is emerging and affecting many sectors and industries. NFT brings a variety of advantages and uses depending on the industry and sector type and nature. In particular, NFT technology is associated with important benefits for the real estate sector. Enhanced liquidity, cost efficiency and more transparency are just a few out of many values that real estate NFT adds to the real estate market. As such, the future of utilizing NFT in the real estate market looks bright. Real estate NFT lowers the entry barrier for interested investors who don’t have enough financial resources to invest in a property as a whole. Likewise, NFT can change the landscape of financing and crowdfunding in the real estate industry. The traditional way of real estate financing, where a property must be pledged as collateral, is transforming to blockchain based financial service or DeFi.

The Role of NFT in Property Development

1- NFT as Collateral

The emergence of NFT has changed the landscape of property development and investment significantly. Currently, developing real estate properties needs considerable financial resources which traditionally comes from banks and financial institutes. Besides, financing doesn’t proceed without an appropriate collateral in place. The game is changing, as NFT has provided innovative solutions to real estate property development. NFT not only eases the process of financing by making crowdfunding through fractional ownership possible, but also can be used as collateral for financing and lending purposes. An asset-backed NFT in general and a real estate NFT in particular is now being utilized as collateral in DeFi. The concept is the same as the traditional financing, however, there are no intermediaries like attorneys and banks in place. A real estate NFT represents a share of a physical property in the blockchain, so it would be an appropriate collateral for property finance purposes in DeFi.

2- NFT for Crowdfunding

Crowdfunding is a perfect method for accessing financial resources for entrepreneurs, start-ups and property developers. Crowdfunding method makes entrepreneurs able to bypass traditional methods and connect directly with investors. NFT, due to its unique characteristics can improve the crowdfunding process. In NFT crowdfunding, the project owners divide the whole project into equal shares and tokenize them in a blockchain network. They would then monetize the NFTs by selling them to the investors and supporters. As such, NFT creates innovative methods for both start-ups to access funds and the supporters to invest in a digital asset as a part of a start-up project. There are several benefits associated with crowdfunding through issuing NFT that we will go through shortly in this article. The process of utilizing NFT for real estate financing is pretty much the same. The property can be tokenized and converted to multiple NFTs for financing purposes.   

NFT benefits for Crowdfunding

1- Transparency

All data about an NFT such as ownership, trade history, underlying assets and a lot more are stored within the blockchain network. Data is accessible by investors and users to check and audit. Data on blockchain networks is immutable, so investors can rest assured about the accuracy and transparency. 

2- Cross-Border Accessibility

People from all around the world are able to access a blockchain-based crowdfunding platform and trade NFT instantly. There is no need for intermediaries like banks for money transfer, as the trades are executed by cryptocurrencies. 

3- Better Liquidity 

Crowdfunding through NFT makes investors capable of selling their NFTs in secondary markets and NFT marketplaces. That is a valuable benefit, as investors will not be worried about converting their stake in the start-up project into cash in case they need to do so. Global access, 24/365 market and selling in secondary markets, improve the liquidity for crowdfunding creators as well as supporters.

4- Security

Blockchain is reasonably safe, so is the NFT and crowdfunding through NFT. Data on the blockchain network is stored across multiple computers around the world. The blockchain ledger is decentralized, so it can not be changed or replicated. Thus, crowdfunding for start-ups or any other project through NFT is reasonably secure for both creators and investors.

Bottomline

Blockchain and its popular application NFT are changing the landscape of many industries and sectors. NFT opens doors to small-scale investors to invest in the real estate sector by making fractional ownership possible. Besides, NFT plays an important role in decentralized finance. Asset-backed NFTs are now being used as collateral in the blockchain network for lending and borrowing purposes. Furthermore, crowdfunding with NFT is now raising start-ups’ attention due to several innovative benefits it brings to the crowdfunding sector.

NFT however, suffers from lack of regulation and legislation across the globe. Even though some countries like the USA and UAE are working on the legislation process, it is still in its early days. As such, investors must be very careful to invest in legitimate NFT projects that are approved by the local government. For further information on UAE regulation on asset-backed NFT, you may read our recent article.