NFT in the real estate sector - or who buys a digital property?

Last year, NFTs experienced an incredible upswing - including in the real estate sector. And from two directions: On the one hand, they can be used to tokenize real estate, and on the other hand, they can also be used to buy virtual real estate in the so-called metaverse.

Dividing a property into individual parts is not a new idea - Crowdhouse in Switzerland is a startup that has been pursuing this idea for around ten years. However, closed-end real estate funds are also pursuing a similar goal by dividing up shares in properties among several buyers.

However, with blockchain technology and the advent of NFTs, real estate can now also be purchased as a token. This means that the property is divided into tokens that can be purchased by interested parties. If the value of the property increases, then the token is also worth more. The owners of the tokens receive a percentage of the rental income or sale price. Although investing in NFTs is still considered risky, it has an advantage for buyers thanks to smart contacts. For example, a rental apartment worth one million francs can be divided into 1000,000 tokens. This means that you can become a co-owner of a property with just 1,000 francs. Who owns how many shares and the value of each token is stored on the blockchain.

At the beginning of 2020, a property on Zurich's Bahnhofstrasse, one of the most expensive shopping streets in the world, was sold for a three-digit million sum. BrickMark paid a large part of the amount with its own tokens. Communication with the token holder takes place automatically via a smart contract.

Virtual real estate costs hundreds of thousands of francs

Another real estate boom is emerging not in the physical world, but in the virtual one. And that is in the metaverse. Investors see the metaverse as a parallel world that we will increasingly use as a playground thanks to virtual and augmented reality. This is also the prophecy of metaverse boss Mark Zuckerberg. In these virtual worlds called Decentraland or The Sandbox, virtual real estate is now also being sold.

In the metaverse, you can walk around with avatars, meet up with friends and experience adventures. In the past few months, properties worth several hundred thousand francs have already been purchased in this metaverse. Payment is also processed via NFTs and via separate tokens, i.e. currencies, in these "countries". Enthusiasts compare the boom with the run on Internet addresses in the early 1990s, while skeptics warn of a huge bubble that will soon burst. No wonder, when you look at the sums currently being paid for real estate in the metaverse: The digital real estate fund Reals has bought a property for $900,000 in Decentraland. It comprises 259 units on 63,000 virtual square meters. Prices have increased tenfold since the beginning of the year. This trend is also being spurred on by the hype surrounding digital art, so-called NFT art on the internet. Ultimately, the Decentraland founder envisions the creation of virtual states in which art and real estate are traded with NFTs.

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Blog article: David Torcasso is a journalist at Handelszeitung and BILANZ
Image credits: Created with DALL-E 2 from OpenAI