Tokenizing Real Estate: Converting Physical Properties into NFT Assets

Blockchain is changing the world significantly. The technology that gave birth to Bitcoin and other cryptocurrencies, is now revolutionizing almost all markets, sectors and industries. DeFi or Decentralized Finance is pioneering the blockchain-based services by providing almost all financial services in the blockchain network. RWA or Real World Asset tokenization is another game changing application of the blockchain. Asset tokenization adds significant values to many industries and markets. It brings the highest level of transparency. Besides, it makes fractional ownership possible, which is a great way for small-scale investors to invest in their popular market like the real estate sector. Converting properties to NFTs makes real estate investment more efficient by removing intermediaries like banks and brokers, as they are replaced by smart contracts. More importantly, the integration of DeFi with tokenized property is about to change the real estate investment landscape.

A 2 bedroom Apartment just sold for $204K USDC on an NFT marketplace.

That was the third property sold as an NFT by Woodstock Onchain.

Real World Assets are estimated to reach a $350B Mcap by 2025

Here’s all you need you need to know to make the most of this narrative 🧵👇🏾 pic.twitter.com/iXFZFKuaOC

— 0x Numbers 🔢📊 (@0x366e) December 18, 2023

What does converting a property to NFT mean?

In the digital era that we are experiencing right now, almost all physical assets can be tokenized. But what does that mean? The process of converting a physical asset to one or multiple token or NFT is called asset tokenization. In other words, the tokens or NFTs represent the underlying asset in the blockchain network. The data about the asset, ownership and authenticity is stored in the blockchain ledger. The blockchain ledger is shared across a network of computers that makes it immutable. As an example for your better understanding, think of an apartment in Dubai Marina that is worth AED 3 Million. The apartment can be divided into 1000 portions and each portion converted to one NFT. In that case, each NFT costs AED 3000. Each NFT represents 1/1000 ownership of the apartment and makes the NFT owner entitled to receive rental income on a pro rata basis.

How to craft NFTs out of a Property?

Even though the process in theory sounds straightforward, it won’t be that easy in reality. However, we will outline the process theoretically for your better understanding.

1. Find a Valuable Property

Obviously, the first step is to find and buy an appropriate property. The value of the property is not necessarily about its price. It must be located in a popular or touristy destination, so it will be a better investment from both capital growth and rental income perspective. As such, you must do your research and find a property that not only suits your budget, but also has big potential.

2. Comply with the Local and International Law and Regulation

Even though asset tokenization is suffering from lack of robust regulation, there are still some minimum requirements in some countries. Make sure to comply with local regulation where the project is developing as well as international law on asset tokenization. This is crucial for your project reputation and investors’ trust.

3. Choose your Token Type

Depending on your project, local regulation and your goals, you must select a token type out of two options. STO which is short for Security Token Offering lies under Security and Stock law and is a more trustworthy choice from investors’ point of view. NFT or Non Fungible Tokens is the other option through which you can divide your property into multiple unique tokens.

4. Find a blockchain network that suits your project

There are plenty of reputable blockchain platforms out there to select from. Each platform has its own pros and cons. Depending on your project’s needs and requirements, you must select a blockchain network that is appropriate for your project.

5. Develop the Smart Contracts

One of the great advantages that blockchain brings into the real estate market is eliminating intermediaries. All terms and conditions, ownership transfer and money exchange between buyer and seller were traditionally done by bankers, lawyers and brokers. Smart contracts administrate the whole procedure automatically with no human interference. Hence, an experienced blockchain developer must develop your smart contract to make the best out of it.

6. Create your project App

A well-designed mobile app is crucial for managing, trading and storing your project NFTs for the investors. The app must be user-friendly, secure and meet the UI/UX standards and best practices. 

7. Token Issuance and Distribution

Once all the steps are taken properly, you can issue tokens and list them for potential investors to mint the very first NFT under their ownership. The initial owners can then trade their NFTs in secondary markets like NFT marketplaces. 

Bottomline

RWA in general and property tokenization in particular are making revolutionary changes across all markets and industries. Property tokenization improves real estate market efficiency by adding impressive and innovative values to the sector. Better liquidity, 24/7 open market, fractional ownership, transparency and cost-efficiency are just a few out many benefits that property tokenization brings to the real estate market. However, blockchain and asset tokenization are still suffering from lack of robust regulation and legislation to safeguard investors. As such, it is highly recommended to invest in legitimate projects that are approved by the local government only. In the end, take good care of your money and pay high attention to the legitimacy of the  projects you are investing in.