- February 11, 2022
- Posted by: Bogdan
- Category: Features
The explosive combination of blockchain and physical assets is making a real difference in how young people can access traditionally illiquid, expensive and slow-moving physical assets such as property. Formerly a once or twice in a lifetime purchase for most people, this lucrative investment opportunity is now being democratized so everyone can share in the wealth.
This is important because many Millennials and members of Gen Z are effectively locked out of the property marketplace. According to The Intelligence Lab’s October 2021 report, global house prices are rising at the fastest rate since the first quarter of 2005. The pandemic fiscal stimulus-induced housing boom continues with prices rising by 9.2% on average across 55 countries and territories in 2020 to 2021 fiscal year.
Harry Horsfall, almost young enough to be a member of Gen Z and founder of Zebu Digital, is no stranger to crypto. In 2103, he bought his first Bitcoin and has not looked back since. His team has grown to 70 young crypto fans globally and he runs digital marketing programs for Web3 projects. However, he says that it’s only via crypto that he has any shot of ever buying an apartment.
“With current UK prices comparative to salary and mortgage multipliers there is no way I could afford a down payment on an apartment and save for a deposit while living in London, let alone get a big enough mortgage for my own place,” says Horsfal.
“However, with an ability to use staking and yield farming through crypto, I am hopeful I can look at purchasing something modest — hopefully in Lisbon.”
But, banking on getting rich enough via crypto to buy a place is not going to be achievable for an entire generation. However, blockchain is also providing innovative new solutions for the majority by disrupting the property market through tokenization. Instead of saving up an enormous deposit to get a crippling mortgage, you can now buy a fraction of a property at a time via tokens and build up your stake slowly while benefiting from rising house prices.
Building wealth, brick by brick
Cointelegraph caught up with Kevin Murcko, CEO of CoinMetro, who has been working in the space for a number of years. He launched tokenized property investments pre-COVID and has seen an initially incredulous community begin to gain both an understanding and appetite for digital assets.
“Tokenization is just what Gen Z was waiting for — even if they didn’t know it. Currently, access to traditional property investment requires a high wealth threshold, much higher than for previous generations,” he says.
“With tokenization,people can now buy a fraction of a penthouse in Manhattan valued at say $30 million and still earn the same percentage return on their much smaller investment. And, when I say smaller it is technically and financially feasible to offer entry level units around the $500 mark.”
He adds: “Crypto is about access.”
While it’s possible to offer such services without blockchain — Australia’s BrickX is a good example — tokens can make the process easier, more manageable and transparent.
Holding the token without using the property, as you might with a traditional timeshare option, means there are no tax implications until the time of the sale.
But, taking the leap into new and relatively untested property tokenization is a big call, and even crypto fans are wary.
Ashton Barger, Gen Z and head organizer of the U.K. conference DeFi Live, has been into crypto since 2017. He’s not sure he even wants to buy a house just yet due to the expense and while he’s interested in the concept of tokenization, he thinks it’s a bit early.
“Regarding the concept of tokenization, I haven’t invested in any of it,” he says. “It’s just not a space I’m as comfortable with investing in yet and I’m just not sure where to start. I will likely find a way to get involved once I have the resources and means to do so.”
On the other side of the equation, tokenization offers developers a path to raising funds, especially for sub-$50 million developments.
“Those developments are not attractive to traditional finance brokers, they don’t make enough money in commissions and it’s ironically harder to raise money for more modest projects. So, not only investors like this approach but so do developers, especially new entrants to the market without a proven track record,” Murcko explains.
“You no longer need to find one investor that passionately believes in a project and is willing to hand over $50 million, you can find thousands of investors willing to pledge lesser amounts.”
Distribution costs are normally very high in TradFi, but if the funds are raised on specialized platforms then the costs are considerably lowered, the processes are streamlined and much of the cumbersome paperwork is ditched.
As an added benefit, Murcko reckons that the rise of tokenization will also force TradFi to become more agile.
A step toward an entire property
Murcko also reckons that the mortgage marketplace will also evolve in this direction, providing access to loans for those currently denied them by big banks.
“So, soon, you have a crowdfunded mortgage platform directly competing with the monopoly banks. A candidate might not reach the ‘bar’ set under traditional finance criteria, but retail funders have different criteria and can be swayed by emotion and other factors. And, that is not a bad thing — helping a single mom raise a mortgage to buy a house otherwise outside her scope will probably result in the most conscientious of re-payers.”
“It’s the same with entrepreneurs looking to raise capital. TradFi might reject them out of hand without a proven track record, but a crowd might look at the passion and vision of the entrepreneur and decide to invest,” he says.
One such entrepreneur to combine his knowledge of property and blockchain is U.K. Bricktrade founder and CEO Gus Kang. Kang has more than 20 years of experience in high-end property in both London and Hong Kong. He established a company called Waterfronts, based in the Docklands in London to manage property from there all the way down to Chelsea, which also has an office in Hong Kong.
He was struck by the possibility of using blockchain to streamline property purchasing bottlenecks.
“Even buying a single property is a laborious process and can take up to six months. These delays seemed so last century and reinventing property investment became my passion.”
Kang is in the process of launching what he calls the U.K.’s first construction financial platform accepting both fiat and crypto where the minimum investment is only $500 and the actual transaction can be done in a minute. It basically uses blockchain coordination as a way of crowdfunding a development, then a one-stop shop to sell the apartments in the development and rent them out.
“We have put a lot of security into all levels of this process to assure investors that the risks are minimized at all times. We are a very experienced team and have been working on this since 2018. 80% of the platform is now built and we are just waiting to complete the remaining 20% under the advice and guidance of the FCA and U.K. regulations,” says Kang.
Token of tokens
Learning from other blockchain platforms, BrickTrade will have its own token which will allow token holders to get early access to offers.
“This will be important, as from our research, we see these deals get funded up to a tune of a million pounds in minutes. There is an appetite in the marketplace for secure asset-backed investments.”
Kang intends to involve the community in all aspects of the deal. In addition to accessing all the formational data, there are plans to have live camera feeds on each building site with regular webinars and updates from the developers.
“The token holders can ask questions directly from the developer team.”
Once the project is funded, they switch from fundraising to sales — again in fractional amounts and also giving the BrickTrade community first dibs.
“So, the developer comes to us to get funding in phase one but in phase two we’re now helping him sell the units while reducing costs of funds and cost of sales on both sides. The fractional owners can then decide if they want to sell the units once complete or if they wish to rent them.”
This is phase three which amalgamates all of Kang’s property — this time in property management.
“We can find the tenant, get all the certificates required and make sure the legal paperwork is in place along with insurance. We do this anyway for our other properties,” he says.
“In fact, the beauty of this system is that a property could live in the ecosystem forever — a property that we helped build and maintain. It is, by now, a known quantity.”
Using blockchain, smart contracts and tokens have been the key to the streamlining of the process. In addition, having a fully closed proven development system from funding to selling will enable BrickTrade to get bigger discounts from developers.
“If we had tried this ten or even five years it would not have been possible. But, now the timing is perfect with the demand in the market for asset backed investments.”
Other markets up and running
The proptech market is finally here can be witnessed by other projects around the globe. One such project, launched and live, is AqarChain based in the UAE. Created in 2018 to develop real-world use cases in emerging tech, AgarChain digitizes real estate on its own platform and claims to be the world’s first decentralized real estate market.
On its hybrid tokenization platform, real estate assets are first turned into an NFT holding the title deed in the metadata and then the NFT is fractionalized. Property ownership is authenticated through the NFT.
Agarchain CEO Waqas Nakhwa says the beta platform launched in January and the NFT Assets marketplace is due to come this month followed by the Metaverse land.
“Aqarchain in Q1 will also be exploring listing properties on its tokenization platform outside of UAE. A full-scale Aqarchain platform is expected to be available in Q3 of 2022. The full-scale platform will have the Metaverse and P2E land exploration game as its extended features,” he says.
Ownership of the NFT tokens will also confer governance voting rights, prorated returns on the property and any capital appreciation or depreciation of the value of each property. In addition, the owners of the project predict an active secondary market.
In addition, Propy, an NFT focused real-estate company, is applying innovative blockchain technology to real-world assets. By working with new protocols for real estate transactions they are providing an extra layer of trust and removing stress for home buyers. As part of their expansion, they have announced the first U.S. real estate NFT with an auction of a Florida-based home later this week. After a successful sale, the property becomes a DeFi asset that can be borrowed against.
DIY property tokenization
At the other end of the scale from the grand plans hatched in the skyscrapers of Dubai, there are more DIY efforts using tokens to represent property.
Aaron Cohen, 23 has been involved in the crypto market since 2016 and is a founder of @PhysicallyBacked. He had previously purchased a land plot about an hour out of New York and he decided to fractionalize the entire plot into multiple one-square-foot assets.
“I am not hiding anything — this is utterly transparent — but I really wanted to add real value to NFTs,” he says.
At the time of the interview in late January, Cohen had just listed four NFTs, each representing a one square foot plot for $200 and within an hour and two of them had sold. In fact, the bright purchaser of one of them had it directly relisted on OpenSea at a new price of 1 ETH.
“Good luck to them,” says Cohen. “Ownership of each NFT allows the holder ownership in the land now and also rights in the future in case of development. But, today, it‘s sentimental NFT ownership. After all, who wouldn’t want to own a plot of land just outside New York?”
Current plans for how to develop the concept in the future include planting trees and creating a carbon sinkhole. Cohen points to the scarcity of his NFTs as they are directly linked to actual land and not a digital space.
Still, it’s a nice thought that you can get on the property ladder in New York for just $200 even if it’s only big enough for a bug hotel.
Disclaimer: Cointelegraph Magazine does not endorse property tokenization services or recommend investing in property via new platforms. It’s super interesting of course, but new and fast-evolving investment tech is high risk.