NFR: Non-Fungible Real-Estate

Noman Shah
7 min readJun 3, 2022

Real estate has consistently shown to be one of the best performing asset types throughout history. Investing in Real Estate has several advantages over stocks, bonds, and mutual funds because it is the world’s largest asset class, with a total estimated value of over $228 trillion. The most noticeable advantages of investing in Real Estate and Real Estate-based financial instruments often include stable cash flow and the capacity to create passive income and improvable assets with the opportunity to rise in value, including several leverages and tax benefits. Real estate, like other markets, is becoming increasingly digitalized. Since 2016, the sector has been transformed by converting real estate investments into tradable tokens, which has increased market participation, simplified middleman operations, increased liquidity, and improved transparency.

In this article, I have elaborated strengths and weaknesses associated with tokenized real estate and suggested the best possible alternative, namely “Non-Fungible Real Estate or NFR”.

Tokenized real estate explained:

TOKENIZATION: The concept of tokenization was first given by TrustCommerce in 2001 to help clients protect their information. So, tokenization is the process of turning your ownership of particular assets into digital form. Clients’ sensitive information tends to be transferred into tokens and can then be used in the databases and internal systems for uninterrupted business operations/transactions. The tickets formed have virtually no value of theirs since they operate on the representation of something valuable. This has provided ease in the exchange and transfer of assets.

THE BREAKDOWN OF TOKENIZED REAL ESTATE: To understand tokenization, it is necessary first to comprehend blockchain. The blockchain network is a decentralized database that acts as a digital ledger, tracking and listing every transaction on a token in an irreversible manner. Blockchain is nearly impossible to manipulate, hack, or cheat because it is filled with smart contracts that permanently record transactions and make them available to everybody. The practice of fractionalizing or breaking down property into tokens kept on a blockchain is known as real estate tokenization. Investors can obtain direct ownership in a piece of the underlying, tangible asset without purchasing or managing the property themselves — property developers and managers are generally responsible for management.

The issuance of tokens containing information on things and their placement on the blockchain is known as real estate tokenization. A property is divided into portions, allowing individual investors to participate. Tokenization can be applied to any property. For example, it could be an office building, an apartment, or a luxury resort.

Pros

There are numerous advantages to digital asset tokenization, but two major ones are worth mentioning right now.

1. LOW INVESTMENTS: As blockchain technology automates processes and eliminates intermediaries, tokenization is less expensive and more efficient. Agents and brokers who function as middlemen in real estate transactions, for example, are not involved in tokenization. As a result, real estate tokens are less expensive since they exclude the expenditures of long document reviews and layered communication. Resultantly, the investment minimum has been lowered drastically. An investor may purchase a portion of a property rather than the entire property. Tokenization, for example, enables the division of a $1,000,000 asset into shares (tokens). Each one will set you back $10,000. Each investor can purchase a specific piece of real estate and profit accordingly.

2. DIVERSITY: Investors can build highly diversified portfolios thanks to low expenses and a virtually open global market. They can easily buy shares in shopping malls, movie theaters, and housing complexes.

3. HIGHLY LIQUID: Another commendable benefit is increased liquidity, which leads to increased secondary trading. If an investor is no longer interested in collecting profits and the property’s value has improved, they may sell their tokens.

4. SECURITY: Unlike traditional real estate investments, which require capital to be locked in for an extended period, digital tokens can be moved securely and effectively over a blockchain network. As a result, tokenization boosts liquidity by making trading cheaper, faster, and more convenient.

Limitations

Despite all the benefits of tokenization, it still lacks at various stages since it isn’t completely developed yet.

1. The ambiguity of Regulatory Structure: The most significant drawback includes the ambiguous regulatory structure of tokens globally. Since it’s a new type of investment, regulators have not yet provided a clear framework for tickets which are highly required for optimization.

2. Lack of Public Awareness: Despite the public’s interest in tokenized real estate, it is still unknown to many. It still lacks professionalized market participants, making it slow as many still do not know much about fractional ownership and how tokenization operates. Significant businesses and investors have still not moved towards tokenization.

3. Lack of Licensed Platforms: The markets still lacks licensed platforms to operate like for cryptocurrency which is one of the significant reasons why larger businesses and investors have not yet moved towards it.

4. Security Concerns: Despite blockchains are highly secure. Yet, the ambiguity of a regulatory framework leads to questions like: “What if our tokens are stolen?” which are still unanswered and are the reason for investors’ hesitance toward tokens.

5. Tax Implications: Tax regimes about tokens are not yet defined which creates another ambiguity since different countries have different tax structures how will it work for permits?

Current Market

Most real estate will be tokenized and transferred to the blockchain in 10–15 years, according to Stobox experts; as not all developers understand how real estate tokenization and fractional ownership function; this process has progressed slowly so far. However, as market participants become more exposed to innovative technology, it is apparent that tokenization will acquire popularity.

To sell tokens right now, you have two options:

· P2P (peer to peer) transactions: Two people are involved: a buyer and a seller. They’ll be able to discover each other on bulletin boards and make a deal.

· Secondary trade that is not centralized. With liquidity pools, this is a safer option. Smart contracts regulate transactions in this situation, ensuring that fraud is kept to a minimum.

Platforms for Real Estate Tokenization:

There are approximately 2000 platforms globally for investing in real estate tokenization. The top highlighted platforms include:

Tzero

With its base in the US (New York) Tzeo was established in 2014 and has managed to have a total funding of $330.3 million by 2021.

Consensys Codefi:

Headquartered in the US (New York), Consensys Codefi was established in 2017 and has total funding of $82.5 million by 2021.

Securitize:

With its headquarter in the US (San Francisco), Securitize was established in 2017 and has total funding of $73 million by 2021.

Addx:

With its headquarter in Singapore, Addx was established in 2017 and has a total funding of $60 million by 2021.

Major players boosting Real Estate Tokenization:

Recently, a few blockchain companies have been playing a key role in boosting the Real Estate Tokenization globally. Blockchains are playing a key role in expediting contract processes by saving a lot of time and money. The following companies are boosting the asset tokenization:

- Republic

- SafeWire

- Vairt

- RealT

- PropertyClub

- ManageGO

- RealBlocks

Problem

Tokenization of real estate has the potential to change the way individuals invest in real estate. Tokenization, in theory, considerably expands the number of investors who can invest in real estate. Tokenized real estate saves expenses and encourages diversity by utilizing sophisticated blockchain technology and fractionalization.

To attain its full potential, however, tokenization must overcome various obstacles, including regulatory uncertainty and volatility associated with digital real estate tokens. The success of tokenization could be determined by several legal and practical challenges. To minimize the risks and expenses associated with negotiating the novelty investment, property owners should engage expert legal, securities, tax, accounting, and real estate professionals during the early stages of tokenization.

Solution

We have invented another solution based upon Blockchain technology which addresses all the issues that tokenization of the real estate faces such as regulatory obstacles, volatility, uncertainty, legality, securities, and taxation. Additionally, it adds more trust and reliability to real-estate exchanges.

Non-Fungible Real Estate (NFR)

NFTs are unique digital assets or tokens for virtual or physical property stored on blockchain networks. As a result, owners of a property’s NFT can prove that they own the property. In addition, NFTs can resolve the unwanted concerns of fraud.

I have named Real Estate asset converted into a Non-Fungible Token (NFT) as Non-Fungible Real Estate or NFR. This makes the transaction of property as seamless, instantaneous, transparent, trustworthy and reliable. Our solution comprises property database stored in blockchain, a transaction management algorithm, user wallet app, NFR marketplace and APIs which connect to other registries, databases and service providers.

Real Estate owners can turn their properties in to NFR using our NFR Generator utility on portal as well as through mobile app. Hence, NFR converts in to a collateral enabling smart contracts, mortgages, loans, leases, rentals etcetera. Owners of NFR will participate in liquidity pools to secure P2P decentralized lending marketplaces for real estate using defi lending protocols. This also makes fractional ownership and fractional collateral-based lending, possible.

Our startup (Xero Tech FZ LLC) has recently signed an MoU with Emarat Developers to turn their entire condos tower project in to NFR. This will mark a milestone in history of NFR.

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Noman Shah

An Inventor, Entrepreneur and Philanthropist based at Lahore, Pakistan.