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Because of the rapid speed of change in the real estate industry, it is essential to maintain familiarity with the latest developments in this field. The domain of blockchain technology and cryptocurrencies is steadily transforming how many markets function and the real estate business is not an exception to this trend. As an investor, you should keep an eye out for the numerous new possibilities that will present themselves due to these advances.
One of these opportunities involves the sale of fractional ownership stakes in a property or debt secured by the property via the use of non-fungible tokens (NFTs). This use case has been investigated by the Land Registry in the United Kingdom, and a pilot project is scheduled to take place in 2019.
What exactly are NFTs?
Tokens that are non-fungible and are issued on a blockchain are referred to as NFTs. These tokens are analogous to cryptocurrencies like Bitcoin. However, in contrast to cryptocurrencies, these tokens are not “fungible.” This means that each token has its distinct characteristics and cannot be exchanged for another of the same kind. This indicates that they may be used to identify a specific thing, regardless of whether it exists in the physical or digital world.
Currently, the primary use for NFTs is the trade of digital artwork. It is difficult to determine which duplicate of a piece of digital art is the “original” one due to the ease with which it may be replicated. Because of this, digital art has not been considered to have any collecting value until very recently. NFTs, on the other hand, allow digital artwork to be linked to a specific number that is then saved on the blockchain. The ownership of the digital collectible may be transferred from one person to another via the sale of the token, which allows the origin of the item to be verified.
NFTs are used for ownership of fractional properties.
However, this does not mean that NFTs may only be utilized for digital assets because they are most often used in the digital sphere. Additionally, non-fungible tokens (NFTs) may represent real estate ownership or actual goods. One such illustration of this concept is fractional ownership. The issuance of tokens on a blockchain would make it possible for homeowners to sell a portion of their property to a large number of smaller investors. These tokens might be held by investors, who would then get either a rental income or a profit split on capital appreciation upon sale, depending on their preferences.
Additionally, this might make it possible for individuals to acquire and sell fractional ownership in rental homes, perhaps in a liquid market and without the involvement of a middleman. This would make real estate investment accessible to many individuals and provide additional opportunities for those who want to access their wealth without taking out loans or relocating.
NFT mortgages?
But ownership is not the only thing that this may impact. Borrowing might also be an option. It is likely that in the not-too-distant future, it may be feasible to borrow money by issuing NFTs that are backed by ownership of property. Individual investors would subsequently be able to purchase a non-traded note (NFT) that would represent a portion of the debt. The owners of the NFTs would then be repaid via the blockchain in an amount proportional to the amount of money they gave out.
What are some of the negative aspects?
When working with cutting-edge technology, there is always a certain degree of exposure to possible danger. Equally as vital as it is to evaluate the possible benefits of anything is to look closely at the potential drawbacks of that something. Although NFTs could be able to provide a solution for releasing the cash locked up in a property, the question remains: who would have the legal authority to govern the property? Someone who held enough NFT tokens could coerce another person into selling their house if they had enough of those tokens. The property residents would be exposed to an intolerable degree of danger due to this. On the other hand, if the token holders do not genuinely own the property, then the current inhabitants might live there indefinitely. Because of this, the investors would never be able to profit from an increase in the value of their investment.
How different are Non-Traditional Finance Vehicles (NFTs) from Crowdfunding Websites That Allow You to Invest in Real Estate? NFTs vs. Crowdfunding Websites That Allow You to Invest in The performance of these websites has been inconsistent, and many have shut down, creating difficulties for investors. It is unclear if non-profit trusts (NFTs) would genuinely eliminate the need for such intermediaries, given that the property still needs management. To circumvent this challenge, a decentralized system would have to be in place to appoint such representatives.
In conclusion, non-traditional mortgages might come with their own set of complications. Who is responsible for the collection of the loan if the borrower goes into default? If each creditor could collect on their own, it would create complications for the lender and the debtor. On the other hand, if only one party may collect, then this sort of mortgage is not all that unlike peer-to-peer lending platforms, and it is thus vulnerable to the same issues associated with centralization.
NFTs in the property area will have to work through many challenges, just as any other new industry would. There is a significant amount of opportunity available as well. Although it may be some time before these technologies become widely used, we all need to be aware of them so that we may be prepared to use them when they become available.
