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by Ahren Posthumus, CEO and co-founder of Momint.so, the #1 African Web3 marketplace powered by blockchain and smart contracts
Inflation, high mortgage rates, and record-high home prices are making it increasingly difficult to purchase a property. According to the September report by Fannie Mae, only 19% think it is time to buy a home. Many respondents also indicate affordability constraints in light of the global economic state. At the same time, a statistic from MIT states that 93% of real estate is out of reach for retail investors. 89% of US investors are interested in real estate, but only 3% could invest due to affordability limitations. The situation is made worse by the high fees buyers must pay to enter their property and the long wait.
At the same time, we saw how the NFT bubble burst, making many lose faith in this technology. Hundreds of new collections are released daily, but according to one of Nansen’s reports, more than one-third of all collections created trade for less than the amount it costs issuers to mint the tokens. Even before the NFT market collapsed, this was the case.
However, the future of non-fungible tokens can be glorious if the technology is applied in the real world and used in its original sense—as a digital certificate of authenticity. Here are 3 non-speculative ways that governments and reputable real estate firms could use NFT to provide the fundamentals for future stable growth in both traditional and digital markets:
Diversification and lower barriers to entry
Property fractionalization, if done by reputable institutions, can boost the real estate market while lowering the entry barrier for retail investors. Interestingly, homeowners would not be required to sell their entire property. Instead, they could simply auction off a portion of their tokenized real estate to numerous people by issuing tokens. To make this concept more appealing to stakeholders, a seller could provide them with rental income in exchange for keeping assets or a profit split on capital appreciation upon sale.
What's more, fractionalization would allow people to spread their risks and have a stake in multiple properties without jeopardizing their entire portfolio. It also can open up real estate investing to those who are interested but lack the necessary capital. People in South Africa, for example, will be able to buy a property token for as little as 10,000 rands (equivalent to $555) or even less. The amount of money required is determined by the price set by the owners and the number of fractional NFTs they issue.
In the long run, it increases the number of market participants. We may see fewer properties abandoned and unprofitable because they are too expensive to afford. The housing market will no longer be restricted to the wealthy only. Futurent, Labs Group, Aqar Chain, and RealT have all demonstrated noteworthy applications of the fractional real estate concept. Momint, the African Web3 marketplace, broadens opportunities for property owners by allowing them to earn rental income from their tokenized property. They gain an additional source of income and extract more value from real estate without having to wait a long time or put in a lot of effort for the property to pay off.
Secure data storage and monitoring
Real estate firms, both government and non-government, rely on paperwork to analyze and store ownership transfer information. In the event of a natural disaster, which has occurred numerous times, this information would be lost or mixed so thoroughly that rearranging it would take months. Errors will unavoidably happen. Reports and agreements could still be written on paper, but, to ensure data security, institutions could store digital copies of original documents on a blockchain that does not require an Internet connection. Even if the keys to an NFT are lost, the digital certificate is not. It is stored on the blockchain permanently.
Furthermore, hackers frequently target government institutions. The information stored on Web2 could be easily replaced or stolen, putting people in danger. In this case, non-fungible tokens could prove their initial function and prevent data theft and replacement.
Finally, the government would have an easier time monitoring the transactions and determining money laundering or tax evasion if all properties were tokenized. Because any data can be quickly compared to that stored on the blockchain, there may be almost no unauthorized transactions.
The European Union Intellectual Property Office (EUIPO) recently released a document indicating that officials are considering using blockchain and non-fungible tokens to combat the counterfeiting of real-world goods. The idea is to create a "digital twin" that is recorded on the blockchain to prove that the item is genuine. The EUIPO intends to have the new system fully operational by the end of 2023, which will necessitate the development of a registry system that will group all the EU's IP holders, logistic operations, and retailers. Authorities can use the same approach in real estate if everything goes according to plan.
Faster and more affordable purchase
Property is less expensive if we exclude advertising costs and real estate agent commissions, which typically take 2.5-6% of the total cost of the contract. In addition, a seller must pay closing costs and a bank commission for the transaction. Even after that, the buyer may not have immediate access to the house. It could take up to 6 months to get everything in order and move in.
Buyers can avoid extra fees if reputable governmental institutions use a digital registry. Transactions can be completed in a matter of seconds. Of course, deal parties must examine the instructions before the transaction, but it is no more dangerous than a typical bank transaction.
It would not necessarily put traditional real estate companies out of business but encourage them to seek more customer-oriented solutions. They could provide consultations on property purchases via NFTs or paid access to their Web3 platforms, where interested buyers could view all available houses and examine their 3D models using VR technologies. Although it would require a higher level of qualification, it could accelerate the sector's overall growth and offer alternative sources of income for those ready to advance.
Propy, a blockchain real estate platform, recently assisted TechCrunch founder Michael Arrington in selling his Kyiv apartment through an NFT auction. The firm continues to provide services such as deal management, a transaction platform, and title and escrow. The European Regional Development Fund has officially backed the initiative.
Does every participant in the real estate market need NFTs?
The main point is that tokenization is no longer a passing fad. The NFT market crash only demonstrated that we should move on from speculative art collectibles. We now have a diverse range of NFT applications that have nothing to do with hype or quick returns.
If we implement them correctly, non-fungible tokens can benefit individuals and organizations. Governments and non-government institutions would store and send data more safely, lowering the risk of cyberattacks and speeding up their work without putting the public in danger.
Landlords would generate more stable passive income by selling fractional NFTs while maintaining ownership. Because of improved data processing, homebuyers would close transactions almost without risk in a matter of seconds and receive their keys to their houses sooner. Investors would participate in the established market without hundreds of thousands of dollars. It would increase public wealth and potentially improve the global economic situation.
I believe that if we issued universal instructions and started putting them into practice simultaneously, mass adoption would be advantageous to each group. It only takes agreement on ground rules and careful regulation without attempts to stall progress.