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Listed and Sold: 4 Ways Real Estate Is Going Virtual

Mintology Admin Dec 21, 2022 4:18:00 PM

A digital transition is making the property market unbelievably more transparent than it is right now. And, property tokenisation is its newest face of innovation. 

Virtual real estate is the hottest trend linking blockchain and real estate right now. NFTs have opened up a new digital realty market. And, thousands are flocking in to buy pixelated properties and land on the metaverse

But shockingly, it may be not what will seal the deal for both of them. 

In 2017, TechCrunch founder Michael Arrington bought the first NFT-backed apartment in Kyiv. Five years later, he sold the apartment for 36 ETH or approx. 93,000 USD at the time. 

Digital tokens are opening new doors in the real estate market. Bringing promising industry practices that might reshape the future for real-world properties. 

In the real world, property ownership is a big deal. Real estate investing takes a lot of commitment, patience, and of course, money. Buying a home might be the single most expensive purchase most people make in their lives. 

So, it’s no surprise verifying property ownership and authenticity of titles are crucial subjects in the industry. In fact, it’s also one of the most challenging:

Challenges Affecting The Real Estate Industry

In most cases of fraudulent land grabs, property theft, and fake renting (among many other property crimes) – bad actors often attack property ownership. They take advantage of faked, lost, or damaged titles to question whether or not the real property owner does own their home. 

In the US alone, there were 17% more people who became victims of real estate wire fraud in 2020. Worst of all, only a third of property-related crimes are reported with the most common one being larceny-theft. Clearly, the industry needs a better way to verify property ownership.

On the other hand, real estate is also an attractive investment market for many wealthy people, particularly 90% of the world’s millionaires. Naturally, the rest of the world wants to follow suit. But along the way, investing in it puts people off because the starting capital needed to enter the market can usually break the bank. 

For those who don’t have hundreds of thousands in the bank, they use REITs. Real estate investment trusts or REITS are rising to become a popular alternative. Yet again, conventional ways to prove you’re part of a REIT still depend on a centralised entity like a stock exchange. 

In the event (which we don’t want to happen) it gets compromised, your investment can be put at risk. With blockchain-supported digital tokens of ownership, it can be pretty easy to prove you partially own properties or REITs minus the risk of your ownership token getting hacked or deleted. 

If not REITs, people can also invest in virtual homes in the metaverse. 

Lastly, by attaching digital twin tokens to real-world homes, homeowners can use them to prove ownership. And possibly, as leverage for mortgage applications. 

So, how exactly can all-new digital tokens of ownership benefit a timeless industry like real estate? Can they fix some of the industry’s biggest challenges? Or, are they just going to be another passing trend?

Let’s find out how these four property tokenisation ideas can shift the real estate market upward in the next decade:

How Property Tokens Will Change The Real Estate Market

1 Authenticating Property Titles and Deeds

If you’ve been reading our latest blogs, you will notice a pattern of how digital tokens or NFTs are being used for authentication. 

That’s because tokenisation can be a more reliable and foolproof way to check for the authenticity of important information and documents such as property titles.

Right now, homeowners authenticate titles and deeds through law firms, insurance companies, and escrow services. It can be a time-consuming and costly process that typically lasts for months because there are specialised “middlemen” involved. 

For most people, it’s inconvenient and impractical. Digital tokenisation can be a faster, more convenient, and more affordable alternative. 

Digital ownership tokens or digital twin homes can represent physical properties. They can make real estate transactions and transfers easier through the blockchain. Tokenised properties make it possible to verify property ownership and detect encumbrances without getting other parties or “middlemen '' in the mix.

This is what happened to a 3-bedroom home in South Carolina that sold for USD 175,000 in October 2022. Also, the very first tokenised home sold in the market. Buyer Adam Slipakoff says they were “able to buy a fully title-insured, rent-ready property with one click,” because of tokenisation.

Besides being faster and more cost-effective, it can also be a safer and more secure way for buyers and sellers. – It could even be the future standard. 

For now, it will have to go through legalisation and regulation across the world. With the support of real estate and blockchain communities, only time will tell.

2 Fractional Ownership and REITs

Almost everyone wants to get into real estate in some form or another. But again, most of the time, it requires a huge amount of moolah or healthy credit history.

So, people use legal and low-barrier alternatives such as fractional ownership or REITs (real estate investment trusts) to start. It’s been getting popular in recent years as more and more people get interested in real estate. However, verifying ownership continues to be a challenge for both alternatives. They rely heavily on centralised entities and high security but still vulnerable systems.

Tokenised properties can again represent property ownership but this time as a divided whole. Unlike our first example where each token represents one property. 

This way property owners can sell parts of a high-ticket property with digital tokens to more investors, especially retail investors with low to medium budgets.

Institutional investors can also benefit from this method of fractional ownership to reduce risks in investments that might take time and/or reach billions of dollars.

Developers and property managers can also code conditions such as sale decisions and disclosure agreements in these tokens’ smart contracts to avoid any conflict.

Investors can use these digital tokens to prove their stake in a real estate investment. If it is part of the agreement, investors may also receive rental income and insurance claims from these investments. Investors can also sell their fractional shares to willing buyers without having to sell the entire property. 

Take, for example, a $100M skyscraper project looking for investors. Typically, it will take them months or years to look for investor groups willing to invest. If you’re a retail investor, there is zero chance of directly investing in the project even for a fraction of the amount.

By using digital tokens for fractional ownership, anyone can now invest minimum buy-in amounts like 1,000 to 10,000 dollars. This makes it possible for more people to support and jumpstart the project sooner than expected. After the completion of the project, investors can share the profits from either rental income or capital gains.

Let’s say you’ve invested 1,000 dollars or 0.00001% of the $100M property. Five years later, the project’s finished and now worth double. If you sell your share, you’re getting 2,000 back. Sounds awesome. But, as awesome as that sounds, right now it’s a difficult idea to be a part of.

Tokenised fractional real estate ownership can make it easier to buy and sell properties and fractions of them without a “middleman”.

In 2018, the St. Regis Aspen Resort used real estate tokenisation to issue digital tokens called Aspen Coins. They used these coins to sell USD 18 million worth of ownership stakes in the hotel to Aspen Coin buyers. Now you can be a hotel owner!


Read more: Supply Meets NFT Demand: How Logistics Can Speed Up Shipping with NFTs

3 Tokenised Property Mortgages

Owners of tokenised physical properties can also their property “twin” tokens to get mortgages on the crypto market.

Real estate and lending companies can use token properties to open up a new way of mortgaging. Homeowners can use their home’s token of ownership as collateral to apply for mortgages. The mortgage amount will depend on the property’s value or the owner’s cryptocurrency holdings.

Because of blockchain technology, lenders can automatically receive loan payments in crypto. Mortgage smart contracts can be set to immediately request payment. And in the event of bad creditors, these contracts can also automatically withhold the collateral tokenised property.

4 Virtual Real Estate

And of course, we can’t forget about the most trending realty-blockchain application: virtual real estate. 

Virtual real estate refers to spaces, land, and properties that exist in digital worlds. These “digital worlds” exist in their own universe as well popularly known as The Metaverse. 

Because of how fast blockchain technology evolves, the term “metaverse” is still loosely thrown around. However, most people in the space would agree it is an open virtual environment accessible through digital and even virtual reality (VR) devices. 

Digital worlds in the metaverse are usually run by dedicated projects. Projects such as The Sandbox and Decentraland lead new and established companies like Roblox into the metaverse of digital worlds. 

Most of the time, these metaverse projects have their own economy and currency to purchase items in their digital worlds – including virtual real estate. They use property tokens in the form of NFTs as digital titles of ownership.

If you told me that I could buy and sell homes on the Internet fifteen years ago before Bitcoin, I would probably laugh at your idea even if I thought it sounded cool. 

Today, the world’s top ten metaverse platforms have already sold USD 1.9 billion worth of digital real estate since they were first introduced. In May 2022, Curzio Research made the largest real estate transaction in the metaverse at USD 5 million. 

In four years' time, the virtual real estate market is expected to increase by USD 5.37 billion. As of now, the average property value of the top 10 virtual realty purchases sits at around USD 2 million. That’s more than the average price of physical homes in the USA, Singapore, and Switzerland!

The Future of Property Tokens

There’s still a lot of work needed to be done to make property tokenisation mainstream in the real estate market. 

Digital tokens beyond real estate still lack the necessary legal framework and tax laws to go live across the world. Because of such risks, many potential buyers and sellers hesitate to make property transactions on the blockchain. 

In recent years, regulation in the blockchain continues to be one of the most discussed topics in many governments. Including NFT technology. However, this discussion may not end up with a definite answer for quite some time. 

Property tokens and the blockchain are still relatively new. In contrast, the real estate market and its practices might be as old as time. Not to mention, repeat property buyers and realtors are more likely to be 10 years older than your average crypto buyer. Adoption will be slower and more challenging in the industry.

But, not all hope is lost. 

To make property tokenisation happen for real estate, the industry will need dedicated agencies with their own marketplace to list, buy, sell, and/or rent properties. Also, mint (make) their respective property tokens all in one place.

Companies who are excited to help the market expand can start their own online realty marketplaces today with minimal risk and almost zero cost.

In response to the legal hurdles, these marketplaces will also need to facilitate transactions, deed transfers, and legal documents among many other essentials. Both blockchain and real estate communities will have to work together with their governments to make this work.

In the next decade or so, using property tokens in real estate transactions wouldn’t be farfetched. Besides the rising demand for more concrete regulatory and legal frameworks, the idea holds more promise and benefits than drawbacks. Potentially, it can make the market more transparent and investor-friendly than ever before.

Real estate is not the only industry digital tokens are making better. In fact, they’re also making transactions faster and more transparent in other industries. Find out if your business is one of them with our team. Discover how you can use digital tokens to scale your business.