Blockchain and NFTs

NFT Real Estate - Explained

In this guide, we will demystify the world of NFT real estate and learn how these NFTs might be the best solution for fast and efficient real estate purchases.

October 24, 2022

The influence and utilization of NFTs grow more and more over time as they offer a number of benefits. This results in a lot of new trends on the blockchain and in the real world. At the same time, everybody notices the massive scale of digital transformation, which has changed the basic ways in which we purchase and sell products.

From record-breaking prices for NFT art to NFTs used as marketing tools for popular fast-food chains, the trend seems to be catching on. The real estate NFT projects are one of the significant movements of the NFTs. Celebrities such as hotel heiress and reality TV star Paris Hilton creating a virtual island within Roblox and big brands like Adidas and Gucci jumping in head-first to embrace the metaverse have generated further excitement around NFTs.

Everything from building projects to lending has been tested as NFTs by various companies looking to improve processes and speed up real estate transactions that can often be complicated by the many layers of document verification involved.

What is NFT Real Estate?

Short for non-fungible tokens, NFTs represent unique digital assets stored on the blockchain. These cryptographic tokens are a great way to purchase, own, and sell any property such as art, music, or even a parcel in virtual reality. The metadata of each NFT acts as verifiable proof of authenticity and ownership and can’t be forged or modified.

NFT real estate is a programmable plot of land in a virtual world. In the metaverse, users can explore these lands using their 3D avatars. People can buy NFTs linked to particular parcels of land to represent unique ownership of their properties. What you can do with the property depends on the project. For example, in Decentraland, users can develop plots of land, attend events, participate in social functions, and more.

In May 2021, Michael Arrington listed an apartment as an NFT which he had purchased by using Ethereum smart contracts in 2017. It was referred to as the first real estate NFT in the world and was sold for more than $93,000.

A real estate development firm, Prometheus, completed the sale of two luxury homes in Portugal through cryptocurrency. In addition, the firm also ensured the availability of ownership through NFTs.

There exist two types of tokenization involved in real estate: entire asset (EA) and fractional ownership (FO). FO tokenization is similar to a crowdfunding platform or other similar structure that allows investors to buy shares. Each fractional owner holds a number of tokens that represents shares in the project, depending on how the investment is structured.

EA tokenization, on the other hand, cannot work unless the actual property deed is turned into an NFT. The regulatory environment surrounding real estate investments makes this process difficult to realize, and some steps continue to be taken to move the ball down the field.

Digital Real Estate vs. Physical Real Estate

Although it’s still difficult to register individual physical homes as NFTs, digital real estate can be registered using NFTs. Digital real estate exists in a virtual world, often referred to as “the metaverse” or “sandbox platforms,” and doesn’t really have any regulatory rules. So, digital assets like homes, lands, buildings, and similar are considered digital real estate NFTs. For example, Decentraland has 90,601 individual plots, each traded as a type of NFT known as LAND, and they’re purchased using a cryptocurrency called MANA.

In the metaverse, users can interact with and construct almost anything they want. Minecraft, for example, is a well-known platform that offers digital real estate potential. Other common platforms include Roblox (NYSE: RBLX), Decentraland (CRYPTO: MANA), Axie Infinity (CRYPTO: AXS), Upland, Cryptovoxels, and Somnium Space. It’s a lucrative opportunity to own real estate in the metaverse. Moreover, many famous companies own big parcels of land and try to leave a mark.

NFTs might help the real estate industry as they provide faster and more effective transactions, partial ownership, investing opportunities, and irrefutable history of ownership. And there have been a few cases where the real estate was tokenized and sold as NFT.

The most concerning thing about this opportunity is the documentation and governmental influence on the purchase and transactions of real-life real estate. It’s really difficult to make your home a digital asset someone across the world can purchase.

NFT Real Estate Use Cases

The project that sells NFT real estate determines what users can do with their property. Here are four things you can do with NFT real estate in the metaverse.

1. Advertising

Creators can monetize their digital land by charging for access or trading their NFTs. There are big brands that use virtual properties to advertise, organize virtual product launches, and offer unique customer experiences. For example, Nike has established NIKELAND in the metaverse to expand its user base.

2. Socializing

There are people who don’t see their NFT property as an investment and want to use their real estate for its intended purpose. Real estate in the metaverse is a virtual space where users can connect online with their friends and other like-minded people. People can use their digitized property to play games and socialize.

3. Work

As we know, remote work and online communication with colleagues have gradually become more and more popular. So NFT real estate can serve as a virtual office space or a location where companies can provide virtual services.

4. Gaming

Real estate in the metaverse can also be used in NFT games. For example, land in Axie Infinity can provide players with extra resources such as tokens and crafting items.

Conclusion

Right now, real estate and NFTs collaboration are just being developed, and it’s hard to make predictions. But we can say surely that metaverses and real estate in virtual worlds are going to have more value as the years go by.

NFTs will possibly change the way we make transactions or even purchase homes, take out loans and so much more. With smart contracts and blockchain technology, the tokens are the future currency in metaverses and in real life. But real-world assets and their tokenization will take some time to be fully implemented in the laws and regulations.