The global real estate market, with a huge scale of nearly 29 trillion USD in 2021, always attracts the attention of many investors and people. However, this market is also famous for its illiquidity, low efficiency and complex processes. Slow transactions, lack of price transparency, and the participation of many intermediaries are major barriers, hindering the development of the market.
Amid that context, encrypted real estate, applying advanced blockchain technology, has emerged as a potential solution, promising to bring a new breeze to the traditional real estate market.
In simple terms, crypto real estate is the use of tokens on the blockchain to represent ownership or cash flow of a real estate property. This approach offers many benefits such as increasing liquidity, simplifying processes and facilitating digital ownership.
Depending on the needs and purposes, there are different forms of real estate tokenization:
Simple Tokenized Real Estate: This is the most basic form, representing a single real estate in the form of NFT (Non-Fungible Token). NFT's unique and non-fungible, verifiable nature differentiates it from other tokens making it suitable for real estate as every asset has a different form and value.
Featured:
Owning an NFT can be equivalent to owning property.
Transferring NFTs can mark a change in ownership of an asset.
NFTs can contain important data like sales history, addresses, and more.
For example, selling a house is as simple as listing it on an NFT marketplace. Buyers can press a few buttons and, if they have enough money, can buy it within minutes – a drastic change from the weeks-long process that today's real estate transactions require . Isolated instances of this form of encryption have taken place.
Dynamic Tokenized Real Estate: Use dNFT (dynamic NFT) – a form of NFT that automatically updates information based on asset changes. NFTs automatically update their data based on relevant conditions.
For example, roof replacement, window repair, etc. dNFT's price may change based on updates and upgrades of the real estate.
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Owning dNFT can be equivalent to owning property.
dNFT transfers can mark a change in asset ownership.
dNFT can contain – and automatically update – important data.
For example, an NFT could contain an image or video of a specific property, representing the state of a home at a particular time. As ownership changes multiple times, countless videos/images are continuously added to the NFT allowing buyers to view changes to the asset over time – providing deeper insights for purchasing decisions their.
Fractional Tokenized Real Estate: Splitting real estate ownership into multiple tokens, allowing investors to participate with small amounts of capital. This approach opens up real estate investment opportunities for more people, while increasing market liquidity.
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Individual tokens can represent a specific percentage of ownership on the asset.
Owning all the fungible tokens could be equivalent to owning the asset.
Tokenized Real Estate Cash Flows:
Separate asset ownership and cash flow into different tokens. Owners can sell tokens that represent cash flow for an immediate return, while retaining ownership of the asset.
Tokenized cash flow can unlock the ability to sell future rental income rights for a lump sum.
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Separate asset ownership and cash flow rights.
Rights to the cash flow can be expressed as NFTs.
Automatically redirects funds to NFT owners.
In this model, asset owners can separate asset ownership and cash flow. The rights to the cash flow (usually monthly rental income) can then be sold outright to another party for a specific period of time. Tokenized cash flows of real estate assets can provide more options for asset owners and reduce the capital costs of real estate ownership.
Tokenized Real Estate Baskets:
If you want to diversify your real estate portfolio, basket tokenization is the way to go. Tokens represent a group of real estate assets and their cash flows, helping to minimize risk and optimize returns.
Benefits of Encrypted Real Estate
Tokenized real estate promises to bring many outstanding benefits to both buyers, sellers and the market in general:
Increase liquidity: Eliminate traditional transaction barriers, making real estate buying and selling faster and easier.
Better price discovery: A more transparent market with more buyers and sellers participating, helping to determine the fair market value of assets.
Lower costs: Streamline the transaction process, eliminating unnecessary intermediaries, helping to reduce costs for both buyers and sellers.
Minimize fraud: Data is transparent and authentic on blockchain, minimizing the risk of fraud in real estate transactions.
Opens up new investment opportunities: Subdivided crypto real estate allows investors to participate with small capital, diversify their investment portfolio and access the market more easily.
Technical challenges – Barriers to overcome
Despite its enormous potential, crypto-real estate still faces a number of technical challenges that need to be resolved for widespread adoption:
Data authentication and verification: Ensuring the accuracy and reliability of asset information on the blockchain is an important factor in building user trust.
Wallet recovery: The risk of losing access to assets if the wallet password is lost is a concern that needs to be addressed.
Scaling: The ability to apply to a large market with a huge number of transactions is a problem that needs to be carefully researched.
Conclude:
Crypto real estate represents a promising trend, with the potential to revolutionize the traditional real estate market. However, to achieve success and widespread adoption, efforts from the entire community are needed, thoroughly resolving technical challenges and perfecting the legal framework.