How NFT makes real estate investment easier than before

Investment with the traditional meaning of “ to commit money in order to earn financial return” goes back to the 16th century. Since then, people have always been looking for new ways to invest their money for the sake of making more money. Over this long period of time, there have been a wide range of areas in which people tend to invest their money. 

In the digital era that we are living in right now, in addition to traditional investment approaches, such as buying properties, new investment opportunities come to the market.

Investment in Crypto currencies like Bitcoin and most recently investment in NFT which is short for Non-Fungible-Token are attracting investors’ attention.

NFT investment and it’s pros and cons

Investment in NFT, like other investment opportunities, has its own pros and cons. You may read the “what is NFT” article to get an in-depth understanding about NFT.  

NFT ownership and authenticity is secured by blockchain, where the information can not be changed or replicated. Thanks to NFT trading platforms like opensea, investors are only a few clicks away from buying an NFT and secure it under their name within a blockchain. It is quick, easy, fast and secure.

On the other hand, the NFT industry is suffering from lack of regulations which makes it very risky for investors. Besides, the market is fairly new and is not deep enough, so liquidity risk is another issue that investors are likely to face. Furthermore, some NFTs might be very overpriced, as there is no sufficient transparency in the market. As such, you as an investor are at the risk of buying an NFT at a price that is not worth at all.

What is Asset-Backed NFT and its pros and cons

Asset-backed NFT is a type of NFT that is linked to an underlying asset in the real world. An artwork, a piece of diamond, an image or an apartment or a villa. Almost every single asset that exists in the real world and has a value can be tokenized and converted to a fungible or non fungible token. Such a NFT almost mitigates all risks that are associated with a digital asset NFT that were outlined earlier in this article. A tokenized tangible asset such as an apartment can not be overpriced. as the price of the underlying asset can easily be determined in the real market. Moreover, the liquidity risk will not be applicable to an asset-backed NFT. The reason is that by buying such a NFT, investors are buying a share of a tangible asset that has its own value in the real market.

However, the lack of regulation is still applicable to asset-backed NFTs. As such,in case of investing in a tokenized tangible asset, you must make sure that it is supported by local government regulations.

How NFT add value to real estate market and small scale investors’ portfolio

So far, we have learned what NFT and tokenized assets are and how an asset-backed token or NFT can mitigate some major risks. On the other hand, the new investment approach to buy a fraction of a valuable property has eased real estate investment for more investors. It allows people with a low investment budget to buy a token that is linked to a fraction of a property or a real estate NFT. For your better understanding, assume a luxurious apartment in Dubai Marina that is worth AED 10 million. It goes without saying that less people are able to afford buying such a property and enjoy a passive income stream from renting it out as well as benefit from capital growth over time. But, what if the same property is broken down to 1000 shares and each share is tokenized? In this case, each token is worth AED 10 ‘000, so more people will be able to purchase one, two or more tokens of that property. As such, investors will not only be entitled for the rental income, but also the capital growth, on a pro rata basis though. 

Bottomline

Investing in NFT has its own benefits and also serious risks, so it must be considered with care. It is recommended to invest in NFTs that are linked to a tangible asset or an asset-backed NFT for the sake of protecting your money. One of the most reliable tokens that are reasonably safe to invest in is property-backed tokens. As outlined in the article, a property can be tokenized and each token represents a fraction of that property. By purchasing such a token, you will be the owner of a fraction of the property and are entitled for any income generated from the property on a pro rata basis.

A tokenized real estate is changing the real estate market and provides great opportunities for investors. However, you must keep in mind that the industry is still suffering from lack of regulation. Hence, make sure that a tokenized real estate project is supported by the local government before making a purchase.