Real estate in the metaverse is a booming business. But when it comes to the structures we actually occupy, blockchain and NFTs are in their infancy. Still, the technology’s potential to streamline transactions and eliminate fraud has real estate entrepreneurs actively developing platforms to enable a future of blockchain-based property transfer and ownership.
NFT-Based Home Ownership.
In a traditional home purchase, a deed, which signifies ownership, transfers title to a property from a seller to a buyer. Prior to closing, a title search is conducted to ensure that the title will be transferred without encumbrances, such as liens and tax liabilities. But a title search isn’t fail-safe. Errors in public records, undiscovered liens and title fraud can plague a transaction. And although title insurance insures against certain title defects, policies contain exclusions that can leave a purchaser with uninsured claims against the home.
Web3 entrepreneurs hope to solve problems associated with inaccurate recordkeeping and title fraud by tying an NFT to a deed. An NFT-based deed uses blockchain technology to create an immutable and transparent record of ownership meant to enhance security, eliminate title disputes and tampering, and facilitate future transfers.
A Palo Alto-based company called Propy was one of the first to bring traditional real estate to web3. In 2017, Propy facilitated the sale of an apartment in Kyiv, Ukraine. As part of the transaction, property rights to the apartment, held by a U.S. limited liability corporation (LLC), were tied to an NFT smart contract, allowing the NFT’s purchaser to obtain ownership.
Since that time, Propy has completed two sales of Florida properties. The Ethereum smart contracts in those transactions directed earnest money deposits into an escrow account, processed final payment and recorded property deeds on the blockchain. Although deeds in those cases were required to be recorded with the county property recorder, Propy envisions a future where jurisdictions around the world will adopt the Propy blockchain registry as an official ledger of record.
NFT-Based Commercial Property Ownership.
Commercial real estate also provides an open field for the development of blockchain-based ownership. One company, TruMint, recently minted NFT ownership for the Utah-based corporate office of Future House Studio, a Metaverse creation and animation company.
TruMint’s White Paper describes its business model, which includes “Trusted Minters,” who “deploy a combination of legal agreements, smart contracts, digital infrastructure, and security protocols in a ‘lockbox-and-key’ model,” which ensures that the NFT also transfers legally enforceable ownership of the real property.
NFT-Based Fractionalized Real Estate Ownership.
Real estate entrepreneurs have also turned to blockchain-based technologies to facilitate fractional ownership in real property. One such company, Elevated Returns, which focuses on equity monetization and recapitalization of high worth properties, created a system to tokenize assets to permit fractional ownership.
In 2018, the company organized the sale of an 18.9 percent ownership share in the St. Regis Aspen hotel through use of digital tokens known as “Aspen Coins” (ASPD), built on the Tezos blockchain. The project was developed as a private offering pursuant to U.S. Security and Exchange Commission (SEC) Regulation 506(c), which defines certain accredited investors permitted to buy into the project. Investors received ASPD, along with benefits including lodging discounts at a rate dependent on the amount of tokens owned.
Another company, Lofty AI, permits individuals to purchase tokens that represent a fraction of cash flow from investment properties. Properties are placed into an LLC then tokenized into individual $50 tokens on the Algorand blockchain. Owners receive rental income on the properties which can be withdrawn daily. When a property sells, the token holder receives proceeds in proportion to the percentage of the asset they own.
Fractional NFT real property ownership models require consideration of the same tax and legal issues associated with traditional models. Those entrepreneurs and technologists with an eye toward sustainable business practices will continue to promote wider acceptance of a blockchain solution that allows shared ownership of real estate assets.
Marketing properties with NFTs.
As NFTs enter the mainstream, real estate agents will look to NFT platforms to market their listings to tech-savvy consumers. Venturing into web3, HomeJab, a company that traditionally provides photography, videography and media production services for real estate agencies, has embraced the new technology. Now, the purchaser of the HomeJab’s services can also receive a real-estate backed NFT of the listed home as part of their marketing package. The NFT is intended to help sellers reach a broader audience, including persons interested in cryptocurrencies. Realtors are encouraged to give the NFT as a “gift” to the outgoing seller or incoming buyer, or even to hold the token in a collection memorializing the realtor’s work.
Municipal Government Ventures into blockchain.
While government bureaucracy typically moves more slowly than the private sector, some municipalities are beginning to experiment with potential uses for blockchain technology in management of real property records.
In June of 2022, the City of Reno, Nevada introduced the first city-run blockchain platform in the United States. The application, built by BlockApps on its STRATO blockchain, creates a single ledger that documents various transactions and simplifies data sharing and collaboration. Use of the technology will begin with the City’s Register of Historic Places, which assists in preserving historic structures. If successful, the blockchain application will be integrated into permitting, licensing, maintenance and other functions.
Likewise, the City of South Burlington, Vermont has undertaken a pilot test using blockchain in the recording of property transfers. While some municipalities seem open to the new technology, time will tell whether it proves manageable and beneficial for those involved. These test programs may serve to inform other government property offices about blockchain’s potential to provide more secure and efficient services.