Selling houses using NFTs
by Zain Jaffer
There’s a Coinbase Twitter video that shows how people in Mozambique can buy low cost houses using NFTs. Mortgage rates there can reach as high as 22%. Much of the people who live along the coastline live in handmade shelters that are easily destroyed by tropical cyclones. According to the Coinbase ad, crypto can help make safer homes available to these people.
Even if they have enough income to afford a house, Mozambicans can’t avail of mortgage loans because their income is informal and not salary based. This shuts them out of the traditional loan mortgage process.
A company called @empowa_io is making homes available to these Mozambicans by using blockchain and NFTs in place of an antiquated loan system. Their NFT blockchain financing helps a partner company called @CasaReal13 to build safer cyclone-resistant homes for them.
Decentralized funding models and NFTs allow these people to buy a home without a traditional mortgage. These houses start at around $10K and are targeted towards low- and middle-income families.
Even in the U.S., young people looking for starter or entry level homes right now have many issues to face. These include high mortgage interest rates, shortage of housing that are now mostly owned by large corporate buyers. Housing starts have lessened because developers are also hobbled by tighter bank loan standards at higher rates.
For example, a lot of people who bought homes prior to the Fed rate hikes of 2022 currently hold long term mortgages of around 3%. The current mortgage rates right now with the rate hikes are at the 7% level. Plus the banks are tighter now, unlikely to give loans to people without steady income even if they do have income.
This is where the blockchain comes in. Because the blockchain can replace the traditional trusted middleman intermediary - the banks, there are significant savings when you deal with smart contracts. In the Coinbase Mozambique example, the capital to build the houses comes from the sale of NFTs.
Bank loans rely on a spread between the cost of capital and the revenue from the added interest charges. Of course it only makes sense if the bank is making money. Since a blockchain smart contract does not need to pay staff salaries, the only costs are the transaction fees to the validators, and some type of return for the NFT investors in the future.
There is more efficiency in the use of capital when blockchain is used, and hence the kind of spreads that banks normally look for can be less to make blockchain funded low cost housing cheaper to process.
If NFTs can help make housing affordable to all, without of course becoming the travesty of what happened during the subprime mortgage crisis of 2008 fueled by loans issued to unqualified people with no jobs, then we will make some headway into getting people the homes they need, without bringing down our financial system in the process.