When people think of NFTs, they usually picture digital art, but these non-fungible tokens are now being used to trade real-world assets like real estate. For example, a property development like Trio Isle could tokenize its apartments for sale.
The global real estate market was valued at $3.69 trillion in 2021 and is projected to grow 5.2% annually until 2030. Despite its size, the market is notoriously complex, with transactions often slowed by paperwork, broker fees, and multiple agents.
Blockchain, smart contracts, and NFTs are creating a new path for the real estate industry. This article explores how smart contracts are serving this growing market.
Advantages of smart contracts in real estate
How can a physical house be sold on a blockchain? Because a house is a unique, non-exchangeable item, it’s considered non-fungible. Tokenizing a real estate asset means creating a unique digital receipt for it — an NFT — with its information stored on the blockchain.
To sell a tokenized home, you’d create a smart contract with a buyer. Smart contracts are digital agreements that automatically execute “if/then” commands. For instance, if both parties sign, the payment is released. If the seller receives payment, ownership is automatically transferred.
Immutable record keeping
Smart contracts and NFTs live on the blockchain, secured by distributed ledger technology. Once created, a contract is stored publicly and cannot be altered.
Property ownership and other details can be safely stored on the blockchain, increasing transparency. NFTs can consolidate all data, including renovations, transaction history, land registry, and titles. Instead of waiting for a buyer, seller, or bank to provide this information, anyone could access it anytime.
Speedy, secure transfers
With verified digital identities for the buyer, seller, and property, payments can be completed in just a few clicks. Transactions that traditionally take weeks could happen in seconds.
While not immune to security threats, choosing a vendor that prioritizes cybersecurity can mitigate risks. Once transferred, this data becomes irrefutable proof of ownership, stored securely on the blockchain.
Automated transactions
Smart contracts’ automatic execution can resolve the uncertainty around title transfers. Traditionally, sellers hesitate to transfer a title before payment, while buyers are reluctant to pay before receiving the title. This process involves intermediaries like brokers and notaries, increasing timelines and costs. Smart contracts streamline this, reducing both transaction time and fees.
Other tasks like mortgage applications can also be automated and stored on the blockchain.
How NFTs enable fractional ownership
Fractional ownership is one of the most exciting uses of blockchain in real estate. By dividing a deed into multiple tokens for joint investors, owners can sell or trade fractions of their property. This lowers the high barrier to entry in real estate, increases liquidity, and simplifies complex investments.
Through fractional ownership, partners could co-invest in a storefront, freelancers could buy office space, or a couple could draft a joint mortgage.
The new realtor
Blockchain offers a trustworthy network for drafting contracts and digitizing assets. By removing middlemen like legal document managers, blockchain can speed up real estate management and cut fees.
However, real estate agents still play a role. They can connect buyers and sellers, help clients find homes, negotiate prices, and form contingency plans. The party who first tokenizes a home could even include royalty fees for future sales within the smart contract.
Real-world applications
Here’s how different companies are using this new technology.
Propy
Propy, a California-based company, hosts property auctions on the blockchain. Its first NFT property sale was a Ukrainian apartment in 2021, and it claims to have processed $4 billion in transactions. Homeowners can register their deeds for Propy’s native token, a DeFi asset that can be borrowed against, much like a home equity loan.
PropertyClub
Founded in 2018, PropertyClub uses the blockchain for tokenized transactions in New York City. It has over 10,000 listings and accepts various cryptocurrencies.
Rent Peacefully
Launching soon, Rent Peacefully will use Ethereum-based smart contracts for rental leases. Each party will have a private key to sign agreements, creating an immutable record. The system will also handle maintenance requests, deposits, and mediation.
Meridio
Now part of Consensys, Meridio is a New York-based company focused on fractional ownership for commercial properties. By selling digital shares of real estate, Meridio connects property owners looking to liquidate assets with investors, making real estate more accessible.
