Technology implemented in real estate: from apps to the metaverse

This article intends to provide insights into how technology is impacting the real estate sector, from the use of apps for automated signing of lease agreements to virtual real estate and the applicability of blockchain to physical real estate. To this end, the concept of the metaverse is framed, providing a description of the main platforms, and the nature of NFTs is explored in depth. The second part deals, on the one hand, with the issues and perspectives of virtual real estate and, on the other, with the operation and limits of NFTs, smart contracts and blockchain with reference to physical assets.

1. How new technologies are changing the real estate market

We have become accustomed to considering digital technology crucial in all sectors: it increases the potential, simplifies transactions and supports new business models. Even in the real estate context we have been for decades experimenting with new forms of use such as online accommodation booking systems and virtual property tours. Such scenarios are increasingly developing thanks to applications that allow users, at any time and from any place, to find apartments chosen through a wide range of features and useful information, and even, through specific apps, to conduct visits no longer only online but also in presence and without the need to be accompanied by the usual agent, allowing considerable flexibility and cost savings. But there is more.

It is also possible to sign leases that are automatically generated by the system as soon as the prospective tenant agrees to the general terms and conditions, enters all the necessary data, specifies his or her preferences for any extra services (such as cleaning or laundry services) and pays the amount required  as a deposit via digital payments.

2. New virtual worlds: the metaverse

The technological impact has further increased with the arrival of new technologies that have enabled the creation of a new real estate market: virtual real estate and real estate metaverse.

According to the definition given by legal commentators, the metaverse is a “collective virtual shared space, created by the convergence of virtually enhanced physical reality and physically persistent virtual space, including the sum of all virtual worlds, augmented reality, and the Internet”[1].

This is not a new reality: open world games have been existing for decades, allowing players to move freely within virtual worlds.

In recent years, however, the metaverse has been revolutionised by the integration of platforms with blockchain[2], the generation and exchange among users of NFTs (Non Fungible Tokens)[3] and, increasingly, by the the use of 3D viewers.

And the virtual real estate market seems to be the sector that has benefited most from this revolution; at the moment the most relevant real estate metaverses are the so-called “Big Four”: The Sandbox, Decentraland, Cryptovoxels and Somnium Space.

Sandbox is a community-driven metaverse: each virtual item is an NFT that can be created, purchased and traded by users via the cryptocurrency called “sand”. Players can purchase plots of land (“lands”) on which facilities can be built and desired virtual experiences can be created[4], envisaging also the payment of entrance fees. Everyrealm (formerly Republic Realm, a leading investment company in the virtual real estate market) said it currently has investments in 27 metaverse platforms, including The Sandbox, where it has developed 100 islands with villas (Fantasy Islands) and a marketplace for boats and jet skis.

Decentraland is a completely decentralised world: ownership of assets is managed by smart contracts that are governed by the DOA (Decentralised Autonomous Organisation), a decentralised autonomous organisation without a governing body but managed directly by the holders of specific tokens (MANA) issued by Decentraland in a limited quantity. The purchase of assets is done through said tokens and can also involve multiple lots that can then be combined into a single token (the Estate Token)[5].

It is perhaps superfluous to point out that the possibilities offered by this kind of virtual environment have attracted strong interest especially because of the potential from an advertising standpoint: Decentraland is not simply a virtual real estate platform but rather a place to invest by purchasing LAND to provide virtual experiences that can then lead to greater real revenues.

Spatial, unlike the other metaverses, allows the purchase of virtual spaces that can also be modified, resold or rented at a later stage, just as in the normal dynamics of the real estate market[6]. Due to said characteristics, investing in the metaverse of Spatial is much closer to traditional real estate experiences: leveraging spaces (albeit virtual) that have value in relation to the utility they fulfill in certain locations (such as conference rooms, art galleries, concert halls). By contrast, in other metaverses, property value tends to be more subject to fluctuations, even speculative ones[7].

3. The nature of virtual spaces: is “land” real estate or an NFT?

The purchase of an asset in the metaverse is not comparable to the purchase of property in the real world both substantially in terms of acquired right or in terms of the procedure required for its transfer. Land is an intangible asset represented by an NFT[8]. NFTs certify the authenticity and uniqueness as well as the full ownership of an asset. Of course, the rules traditionally applicable to real estate, in particular the special rules of real estate leases, are made inapplicable by the digital nature of the asset. The building constructed on virtual land is simply a 3-D work created with software, whose digital ownership is certified. Therefore, it is clear that the contracts that currently characterize the real estate landscape cannot be applied in the metaverse; on the other hand, however, atypical agreements could be signed that, at least in certain respects, may borrow certain “typical” aspects of virtual real estate contracts.

In the Italian legal system, land may be qualified as (intangible?) property under Article 810 of the Italian Civil Code. The related NFTs could represent the respective digital assets, echoing the case of those legitimation documents under Article 2002 of the Italian Civil Code aimed at identifying the subjects entitled to a particular service (such as tickets for a show)[9].

The transfer of NFTs involving land is done through smart contracts [10]. The latter have the advantage of being unchangeable and ending automatically: upon the occurrence of a certain event (trigger event), the contract will be implemented with the transfer of the monies specified in the code of the smart contract in question[11].

4. Virtual real estate: issues and possibilities

The value of a real property depends on various parameters, including its size, location, surrounding context and the relationship between supply and demand. In the metaverse, some of these criteria may acquire a different relevance or be questioned, while others still retain their value. For example, the location of a property may have great significance also in the metaverse, as the creation of neighbourhoods inhabited by certain users may lead to a greater flow of players in such areas[12].

On the other hand, the metaverse has no boundaries and therefore there is no certainty that the number of lands currently existing on each platform will remain the same over time. Consequently, the value of each land might change over time due to a potentially infinite expansion.

In other words, the metaverse allows users to enjoy new spaces where to carry out intangible business activities, such as the sale of digital goods[13], but it also offers multiple possibilities for real business: for instance, one will be able to buy physical goods after having viewed them online, or take virtual tours before booking a stay at a holiday resort[14] or entering into lease agreements.

Of all the asset classes, retail seems to be the one that can best exploit the possibilities of the multiverse. In the field of fashion, for example, where the relationship with the brand is vital, virtual worlds can be used simply to advertise one's own brand, but also to strengthen the relationship with one’s customers by selling them designer skins (the outfits of one's avatars), or to give them the possibility of buying specific garments after having tried them on online through “virtual try-on” experiences[15]. Even large retailers apparently do not want to miss the opportunity to use the metaverse to advertise their products: Carrefour, for instance, bought a 36-hectare plot of land on The Sandbox to organise events or product launches.

In light of all the foregoing, it is not surprising that real estate sales on the four major platforms of the metaverse reached $501 million in 2021 and exceeded $85 million in January 2022 alone[16].

5. NFTs, smart contracts and blockchain in the “real” real estate market

As we have seen above, NFTs represent a fundamental element of virtual worlds. However, in theory, they could also be used to replace real property title deeds, deeds granting the use of properties and accounting documents such as invoices. In addition, the signing of smart contracts could obviate the need (or perhaps the opportunity: editor's note) for declarations of Third Trusted Parties (notaries and real estate registers)[17] valid as certification erga omnes, as well as other intermediaries, such as banks for the provision of financing and real estate agents for the matching of supply and demand.

Of course, said considerations are still abstract for the time being, given the current statuory obligations regarding, for example, the continuity of registrations pursuant to Article 2650 of the Italian Civil Code and the central role of notaries. Moreover, looking at our legal system, it is difficult to imagine title deeds in the form of NFT, given that pursuant to Articles 1350, 2643 and 2657 of the Italian Civil Code, the transfer of properties requires specific written forms (public deed or notarised private deed) and the registration of the relevant deed with the land registers.

Finally, smart contracts cannot be amended after they have been entered into because each transaction is recorded as an immutable block of data that can only be followed by a further block of data (such as a new and subsequent smart contract), which strengthen the entire blockchain[18]. Hence, the signing of smart contracts could be useful merely for single and instantaneous transfers (typically the purchase and sale of a property without a preliminary agreement), but could hardly fit into the contractual structures envisaged in the current real estate scenario. Think, for instance, of the case in which there is a need to provide for a significant interim period between signing and closing, which may also contain conditions precedent/subsequent[19].

A further area that deserves consideration is that of works contracts between private parties. Indeed, the blockchain system would make it possible to bring together in a single place, immutable and accessible to all parties, all information concerning the property undergoing works. Moreover, it would allow transactions to be carried out in a transparent manner at certain milestones in the relevant timetable and agreements to be entered into in an automated manner via smart contracts[20].

The content of this article is for information purposes only and is not, and cannot be intended as, professional advice on the matters dealt with. For further information, please contact Luigi Croce.

[1] Annunziata F., Conso A., NFT - L’arte e il suo doppio. Non Fungible Token: l’importanza delle regole, oltre i confini dell’arte, Montabone, 2021, page 39.

[2] Pursuant to Article 8b ter, paragraph 1 of Decree Law 135/2018 (Simplification Decree 2019) converted into Law 12/2019: “«Distributed ledger-based technologies» means IT technologies and protocols that use a shared, distributed, replicable, simultaneously accessible, architecturally decentralised ledger on a cryptographic basis, such as to enable the recording, validation, updating and storage of both unencrypted and further cryptographically protected data verifiable by each participant, not alterable and not modifiable.”

[3] For further discussion on this point, see paragraph 2 below.

[4] In early February 2022, video game developer and publisher Ubisoft announced that one of its core games-Raving Rabbids-will come to life in The Sandbox. Gucci decided to land on The Sandbox with its own experimental concept store, Vault, which was initially created as a platform for selling a curated selection of rare vintage items and limited edition models.

[5] Che cos’è Decentraland (MANA)?, in academy.binance.com, 18 November 2021.

[6] Description of Spatial in the exhibition “DART 2121. 2^nd edition. NFT art of the future” presso il DART (Dynamic Art Museum) in Milan, 30 March-24 May 2022.

[7] Scully B., NFT Real Estate: Why Buying Land In The Metaverse Is Not It, in spatial.io, 9 February 2022.

[8] These are cryptographic tokens, created on blockchain, which therefore contain unique, non-alterable and non-interchangeable information capable of “univocally certifying, a digital object and/or a right inherent in a physical asset and of which they can, in any event, guarantee the title and, typically, the right of ownership” (Annunziata F., Conso A., NFT - L’arte e il suo doppio. Non Fungible Token: l’importanza delle regole, oltre i confini dell’arte, Montabone, 2021, pages 15-16).

[9] In the Italian legal system, such case is distinguished from the case of negotiable instruments within the meaning of Article 1992 et seq. of the Civil Code. Specifically then, tokens are not embedded in a res, but require a res (e.g., computer) to be used. Therefore, the incorporation is not physical but at most digital (Cfr. Rulli E., Incorporazione senza res e dematerializzazione senza accentratore: appunti sui token, in Orizzonti del Diritto Commerciale, issue 1, 2019).

[10] Pursuant to Article 8b ter, paragraph 2 of  Decree Law 135/2018 (Simplification Decree 2019), converted into Law 12/2019, “A «smart contract» means a computer program that works in accordance with distributed ledger technologies and whose execution automatically binds two or more parties on the basis of effects predefined by them. Smart contracts meet the requirement of written form subject to computer identification of the parties involved through a process having the requirements set by the Agency for Digital Italy with guidelines to be adopted within ninety days of the date of entry into force of the law converting this decree.”

[11] Janssen A. U., Patti F. P., Demistificare gli smart contracts, in Osservatorio del diritto civile e commerciale, issue 1, January 2020, page 35.

[12] For example, singer Snoop Dog is creating a micro-world called “Snoopverse” on The Sandbox and footballer Marco Verratti purchased 25 islands on The Sandbox.

[13] On Horizon Worlds, a Meta video game accessible with Oculus visors, it will be possible to monetise virtual objects created by the users themselves (e.g. clothes for avatars) or allow access to a portion of the world created directly by users (Testing New Tools for Horizons Worlds Creators To Earn Money, in oculus.com, 11 April 2022).

[14] The R Collection Hotels group with the start-up Takyon created a decentralised booking platform combining NFT and blockchain and sold the first NFT including a stay at the Grand Hotel Victoria in Menaggio (Como) (R Collection Hotel entra nel mondo del Metaverso. Il futuro è già qui, in excellencemagazine.luxury.co.uk, 28 February 2022). Moreover, Qatar Airways launched QVerse, a virtual experience that allows users of the www.qatarairways.com/QVerse website to virtually navigate certain areas of Hamad International Airport and the inside of the cabins of the company’s aircraft.

[15] i.e the possibility to try on cosmetics and garments online via augmented reality (AR). Such practice may potentially increase receipts and reduce the number of returns.

[16] Simonetta B., Metaverso, vendite immobiliari da mezzo miliardo. Entro fine 2022 raddoppieranno, in ilsole24ore.com, 1 February 2022. Sales exponentially increased after 28 October 2021, when the company of the social network Facebook and apps such as Instagram, WhatsApp, Messenger as well as of the virtual reality viewer Oculus Rift changed its name to Meta Platforms Inc. stating that “The metaverse is the next evolution of social connection. Our company’s vision is to help bring the metaverse to life, so we are changing our name to reflect our commitment to this future”. See Mark Zuckerberg, Founder’s Letter, 2021, in about.fb.com, 28 October 2021.

[17] Di Maio D., Rinaldi G., Blockchain e la rivoluzione legale degli Smart Contracts, in dirittobancario.it, 11 July 2016.

[18] Cos’è la tecnologia blockchain?, in ibm.com.

[19] Di Maio D., Rinaldi G., Blockchain e la rivoluzione legale degli Smart Contracts, in dirittobancario.it, 11 July 2016.

[20] Blockchain in Real Estate, in consensys.net.