From Virtual to Real Property – DeFi Mortgages and Gen Z Wealth Building
by Fintech News Singapore October 23, 2023Real estate is overactive everywhere, including the metaverse. Statista estimates the value of the metaverse at $65.5 billion in 2022, with the virtual real estate market at around $500 million. Virtual property prices are exploding with metaverse real estate agents enabling multimillion-dollar deals for crypto investors. Increasing metaverse adoption and the burgeoning real property market indicate that the trend will continue.
Generation Z is leading this digital aggregation, but there are other kinds of property they want to own. The young, crypto-wealthy generation aims to deconstruct traditional economics. As rapidly developing decentralized finance (DeFi) services develop, less conventional buyers will get more access to physical properties.
The Metaverse and Real Estate
Most people connect the metaverse with virtual reality and cryptocurrency. Few realize that digital land value is rising by 400-500 percent in specific cases. Some digital private islands cost the same as a physical single-family home. For example, Sandbox sold virtual private islands for $15,000 each in 2021, now worth $300,000 in 2023.
Digital property owners can generate income through selling or leasing the property, similar to physical property owners. They can also build businesses that bring in money by offering a good or service of value. The digital property value depends on size and location, like proximity to parks, plazas, and business centers. High-traffic areas also add to the value.
Far-thinking investors buy digital land from platforms like the Sandbox and Decentraland as the popularity of the metaverse rises. Their purchases position them as leaders in the real estate industry once adoption becomes pervasive.
Metaverse enthusiasts, primarily millennials and Gen Zers, live increasingly virtually. They work, play games online, and transact online. About 70 percent invest in crypto and virtual land as they interact more deeply in the metaverse. It is plausible to anticipate that the basic tenets of the digital world will spill over to the physical one. One way the disruption can cross over is into DeFi mortgages.
DeFi Lending and Homeownership
Crypto-native and gig workers can benefit from DeFi lending protocols as it makes it easier to get mortgages than from centralized banks. DeFi lending protocols empower people to receive their next mortgage in a novel way and use staking rewards as payments. DeFi services depend on smart contracts to execute financial transactions, removing the need for human agents. Homebuyers can take out mortgages faster and at a lower cost since overhead is lower.
Traditional mortgage lenders do not recognize cryptocurrency holdings as income, putting crypto-natives at a disadvantage regarding homeownership. At the same time, it keeps local real estate markets from dealing with the growing population of crypto-rich potential borrowers.
Without liquidating their positions, borrowers can use digital assets as collateral when getting a DeFi mortgage. That means they can earn interest on their down payment through crypto staking or other yield-generating activities. Acquiring home mortgages via the traditional routes prevents borrowers from earning interest on their down payments. That makes it more challenging to repay the loan.
Additionally, DeFi mortgages offer more flexibility. DeFi mortgage holders can use their passive crypto income to pay their mortgages. If you’re young and need more time to build your credit score, you should have an option through on-chain data and crypto holdings.
Conversely, a borrower with a credit history might include specific off-chain information, like their credit score, to get better rates. Traditional mortgage holders with digital assets may also get better refinance home loan rates with DeFi mortgage lenders.
You should know that DeFi home mortgages still operate within the confines of existing home-buying processes and legal structures. These include any tax obligations and fiat-based down payments required for the sale.
Leveraging Crypto-Wealth With DeFi
Generation Z’s buying behavior pivots from the self-centeredness driving millennial consumerism. Gen Zers want to explore new business models, prioritizing autonomy, access, and ethics. Traditional ways of generating wealth are slowly eroding, and Gen Zers may use DeFi lending conventions to speed that up.
The real estate industry is ideal for testing the validity of this concept. Rising home prices make the disparities in generational wealth building apparent. One aspect is the requirement of traditional banks for a minimum of six months of cash reserves and three years of continuous employment. Cash reserves do not include the value of crypto assets.
These restrictions disqualify over 40 million American adults participating in the gig economy, almost a third of whom work gig jobs as their primary source of income.
These and other creative workers are likelier to take several paths to generate income, like crypto investment. But traditional banks don’t recognize those assets without some bridge, which is where DeFi lending protocols could come in.
DeFi and Wealth Building
DeFi lending protocols for purchasing property remove the barrier of entry to generational wealth for crypto enthusiasts. It benefits everyone by empowering those with digital assets to leverage them to own real estate. It also encourages mainstream participation in the decentralized finance structures.
Smart investors understand that the digital world is as vital as the real world to an increasing number of people. Time will reveal how the value of the digital world evolves. However, the economic systems developing in the metaverse indicate a more inclusive, equitable, and decentralized future.
Featured image credit: Freepik
