How blockchain and NFTs can revolutionize real estate investing
Co-founder at Overwrite. Passionate about property, technology and driving international business growth.
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Property has been a solid investment for as long as we have had a house. However, owning, developing or managing rental investments and flipping houses requires a significant amount of financing, either from a bank or other conventional lender or private investor. Investment funds have made it possible for small investors to become involved in more significant projects, contributing a smaller stake to the overall commitment.
Until recently, the legal and economic processes for property rights and trade have been cumbersome and slow. But as we enter the Web3 era, a new option is shaking up the system, making it safer and easier to track and reduce the long timescale of such transactions.
Using smart NFT contracts and remote meetings, real estate purchases can happen in minutes, not months, with investments agreed and signed with a few clicks on a smartphone.
Web3 And NFTs: The Latest Property Trading Disruption
If you’re over 40 or so, you’re probably already resigned to the long-standing system of buying property that requires banks, lawyers, agents and many intermediaries to validate every stage of finance and registration via extensive paper-based communication, from financing approval to signing the papers.
If you’re part of Gen-Z or Gen Alpha, you’re probably baffled by such antiquated nonsense. You can buy groceries, cars, vacations, cryptocurrency, art investments—even a virtual plot of land in the Metaverse or an $8 million Lamborghini—with a few clicks, so why not a house?
With the latest technology, this new generation of investors may soon get their wish.
Blockchain real estate sales are already underway in the US
Propy, an American real estate platform specializing in blockchain and NFT, delivered the first official real estate sale using blockchain technology in 2021. While still in its relative infancy, the company is making significant strides, overcoming legal nanny issues and developing a workable system to define how the new era of property sales and transfers will work.
Since then, there have been a few other NFT-based (requires subscription) real estate sales, several of which also claim to be the first ever. Propy’s latest groundbreaking sale, which they claim is their third worldwide, was completed within 24 hours, which included a digital auction after the NFT had been minted and its smart contract in place.
A pilot blockchain property transfer in the UK
Years before these transactions, back in the UK, HM Land Registry took its first steps into blockchain to speed up transactions while making them more secure.
According to the company, in March 2019 the sale of a semi-detached house in Gillingham, completed using traditional methods, took 22 weeks instead of the estimated six expected by the buyer and seller. Using NFT technology, HM Land Registry ran a prototype sale via a group Zoom meeting which completed the same transaction in less than 10 minutes. Each step was automated, calling the next party in line when it was their turn.
From 22 weeks to 10 minutes: Why doesn’t anyone want it? Now that we know this is possible, I think it’s only a matter of time before it becomes standard practice.
NFTs and mutual funds
We are starting to see where technology is taking real estate purchases, including NFT real estate sales, but how does it affect investment funds? One way could be to use shared ownership (FO), and another would be decentralized automated organizations (DAO).
Fractional ownership of real estate has fewer legal hoops to jump through using blockchain and NFT than a single real estate sale. Homeowners, agents or developers can sell shares in their property or development to a number of investors as individual tokens without the need for costly intermediaries. Each token will represent a percentage of the total fund, with smart contracts automating the payment of profit sharing, rental income and dividends. This can be a new opportunity for investors with limited initial capital, while those with deeper pockets can easily divide their portfolios far and wide.
Decentralized automated organizations raise and invest capital in projects that will ideally provide a return on investment – like a venture capital company. But unlike with VC, each shareholder has one vote and one vote, and it’s all managed through NFT smart contracts.
DAOs are available to anyone with any amount of capital to invest, not just fat cats and sophisticated investors. Shareholders make decisions instead of fund managers, and assets are not locked up for long periods. DAOs are easy to set up, global and allow investors to trade their shares whenever they want while voting on all decisions. I think this could soon become investment finance for the masses.
NFT financing: an alternative to traditional mortgages?
As blockchain technology approaches the mainstream, it presents an opportunity for financing real estate purchases. As with fractional ownership, a buyer can source the pool of investors, transact directly with them via blockchain, and detail the repayment terms and schedule in an NFT-based smart contract. Payments will be transferred via blockchain in proportion to each investor’s initial contribution. And with legal transfers managed through the smart contract’s automated processing, the need for middlemen to take a cut is significantly reduced.
The new era is coming – ready or not
There is a lot to unpack with new technology. However, given the increasing security and acceptance of cryptocurrency, blockchain and NFT sales happening around the world, I believe that buying, selling and investing in real estate via NFT is only a matter of time. It’s lightning fast, cheap and far less prone to fraud. Whether you’re a tiny hopeful or a giant investor, your investment pool just got bigger, faster, fairer and far more exciting.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice regarding your specific situation.
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