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Aarushi | 27 May 2022

Real Estate NFTs: What Are You Really Buying?

Real Estate NFTs: What Are You Really Buying?

NFTs or Non-Fungible Tokens have become the new buzzword in the tech world. Using the same blockchain technology that crypto uses, NFTs have invaded everything. The unfortunate part however is that people still don’t really understand what an NFT is and how it’s different from crypto.

Before we can explain what real estate NFTs are, let’s talk about NFTs.

Non-Fungible Tokens or NFTs are unique digital tokens that aren’t replaceable. For example, all Shiba are interchangeable, and so are all Bitcoin. However, if we sell digital art that has only one copy, it isn’t interchangeable with some other piece of digital art. Unique tokens like this are called Non-Fungible Tokens.

What Are Real Estate NFTs?

Just like the ownership title of a property, NFTs are one of a kind digital titles or tokens. This means anyone that holds a real estate NFT will have proof of ownership over a particular property.

There are many types of NFTs in Real Estate. Since ownership in real estate can be categorised into two types, we have our first two real estate NFTs:

1. Entire Asset Tokenization

Entire Asset Tokenization isn’t currently a reality in the NFT space. It is also much harder to execute than its counterpart, Fractional Ownership Tokenization. This is because a deed needs to be generated completely fresh as a digital token to allow it to be used as an NFT. However, due to the strong rules and regulations that command the real estate sector and the restrictions around digital assets in various countries, Entre Asset Tokenization is still difficult to execute.

2. Fractional Ownership Tokenization

Fractional Ownership Tokenization, however, already exists in the NFT marketplace. Since NFTs are registered with the SEC, they are used similarly to stocks by many construction firms to sell their projects as crowdfunding projects. A project is divided into multiple shares and sold to investors as NFTs. Investors can thus hold multiple Fractional Ownership Tokens in the same project making every investor’s share vary.

Real Estate: Metaverse Vs Earth

Digital real estate is the new thing capturing the minds of the tech world. 

Nothing like its physical and tangible counterpart, digital real estate, is being sold online for prices higher than an average home. Since Metaverse has taken the tech world by a wave, people are buying plots of land in virtual worlds.

These plots of land have recorded sales of over $100 million in NFTs (Non-Fungible Tokens), according to NWO.AI, and are going for costs as high as $2.4 million. The kicker is nobody has any use for this digital land, and it’s still being purchased, leased, and rented.

With crypto being exchanged for this real estate, it can cause significant side effects in the crypto markets. This is due to the Metaverse Real Estate not being an appreciating asset. This means the value of your digital real estate is likely to never appreciate.

However, just like its physical counterpart, digital Real Estate also has a limit set to it. For example, Decentraland has 90,601 digital plots, each trading as an NFT type known as LAND, and is purchased using a currency called MANA.

Advantage And Disadvantages Of Real Estate NFTs

Advantages of Real Estate NFTs

1. First mover advantage

Since Non-Fungible Tokens are the newest love of the tech world, anyone investing in them today has some semblance of a first-mover advantage. 

The first-mover advantage is the advantage that someone gets by tapping into a product or service that might take off in the future. If you’re some of the first people to invest in a certain market, you’re faced with less competition and as a result, lower prices.

As crypto has taught us, first-mover advantage can be the difference between making thousands of dollars in profits and millions of dollars in profits.

2. Collectibles 

Non-fungible Tokens, as the name suggests are unique pieces of technology. This makes them highly collectable. This has attracted collectors from all walks of life and is the main factor that might make NFTs more sought after even amongst people with an affliction to technological advancements.

3. Security

Since Non-Fungible Tokens are generated and managed using blockchain technology, it makes these tokens highly secure. It helps keep a track of each piece of digital asset you own as an NFT and every single piece of information related to it.

This means your digital art is not under a threat to get stolen, misplaced, or lost.

4. The Steep Rise in Price

As more and more people move towards digital assets and currencies, a new trend has emerged. The trend of millionaires birthed by trading digital assets. This trend has drawn in even more people who wish to make the same capital gains as some of the early birds in these digital marketplaces, which in turn, keeps raising the value of these digital assets like Non-fungible tokens.

Disadvantages of Real Estate NFTs

1. Misses a Personal Touch

While NFTs are a great addition to your collection, physical art and collectable items cannot be converted into NFTs and vice-versa. This means a collector who might want a physical item would have to revert to buying the physical and tangible asset.

2. Environmental Affect

Non-Fungible Tokens are a part of blockchain technology. This means they require astronomical amounts of power to exist and function. NFT calculation consumes a lot of energy and thus work against one of the biggest needs of the hour, i.e. environmentally conscious and sustainable practices.

Also Read: The upcoming real estate trends of 2022-2023 you must know


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