Real Estate Re-Imagined for ALL

Along with food and water, shelter from the elements is a basic requirement for human existance. However, the real estate that provides the shelter has attractive qualities that also make it a highly coveted asset by investors. Its scarce, its expensive to produce and unlike fiat electronic bank money, its physical and difficult to confiscate. While its tempting to characterise real estate investors as aggressive capitalist ‘vulture’ funds, the people behind the faceless funds are often ourselves. The money we put aside into our pensions that help us plan for retirement can find its way into property. But this understandable need to build a nest egg for the future can be at odds with the younger generation’s need for secure housing today. Our need for financial security monetises others’ more immediate need for shelter.

The governance and procedures that surround property — lawyers, agents, realtors, surveyors, local governments, banks, and registrars, add inertia and cost to the process of exchanging and renting housing. These professions often have legal constructs that protect their compensation structures and they were not designed with the needs of the homesearcher in mind.

Many people find themselves beholden to this arcane structure which limits their mobility and creates anxiety as the human desire for the security of ownership becomes unachievable.

We will mostly experience several different living situations (accommodation type, arrangement or location) before ‘settling down’ — if that ever happens. But your need for mobility (or indeed the jobs market’s demand for it) makes you manna for the real estate industry. You will pay fees and expenses each time you move rental home. You will provide good returns to the investors who own the properties you have rented. All the while, you will watch the price of property rise and rise. By the time you come to consider putting down roots with a home purchase, the industry has drained you of the financial resources you need to be eligible for a mortgage.

How can blockchain technology fix this problem?

  1. Fractional Ownership
  2. Decentralised Records
  3. Global Liquidity
  4. Shared Economics
  5. Fractional Ownership

With blockchain technology, real estate can be released from the current legal constraints that favour institutional ownership for the benefit of everyone by ‘tokenising’ its title. To ‘tokenise’ an asset means to split its title into a larger number of small sub holdings, allowing individuals of diminimus wealth to own part of a property. Once tokenised, it is free from the limits of domestic bank money and local legal constructs to give way to an easier way for everyone to participate in the economics of ownership.

2. Decentralised Records

During the exchange of a property between two people, much time and money is spent ‘establishing title’. This means proving that the house belongs to the seller in the first place — I need to pay a lawyer to prove the house belongs to me. There are other ‘searches’ that need to be undertaken, again by a lawyer, to ensure that are no liens, debts or claims on the house beyond that of the seller and that any boundary issues are settled. All of these records are centralised with ‘authorities’ like local governments and registrars. For the most part they constitute a black box of arcane manual recording processes that are slow and expensive to administer. What is odd is that this is MY asset and yet I don’t have control or convenient visibility of its record. Blockchain facilitates a decentralised record of these details so that all of the above verification procedures are not controlled centrally by a small number of agents but by all nodes in a network simultaneously. The blockchain is the internet based platform that records all the details of the asset’s dimensions and ownership features using digital cryptography. Ownership is logged in a ledger that we all have access to. It means that I can pass ownership of my house to you in exchange for money within a matter of hours instead of months and without the need for professional services.

3. Liquidity

A piece of real estate is a cumbersome asset to own with a high minimum entry price point. With blockchain, the ledger that records all these mini ownership titles is decentralised and self administering. If I buy a token in a property, the blockchain records, encodes and stores my ownership rights. Whats more, it allows me to trade my ownership token peer-to-peer on the network — again without the need for a professional service like a broker or lawyer. Geographical borders no longer inhibit ownership. I might be living in New York, but my token is global — I can now own parts of properties all over the world. The stock of real estate is no longer the reserve of a small number of wealthy institutional players, but all can participate in the ownership of this asset class.

4. Shared Economics

The cashflows that accrue to real estate investors from renting to tenants can now be distributed proportionately to all token holders. The tenant does not pay money into a bank account of the management agent (and incur the costs and fees associated with this broker) but instead rent payments are made in the currency of the token directly to the token holders. This is where the concept of ‘smart contract’ really comes into its own. The tokens that encode the contract can be programmed to fulfil the role of banks, brokers and lawyers. Smart contracts can navigate the blockchain ecosystem and communicate with each other to ensure payments are timely and conditions of payment are met.

The savings that this approach generates are now shared between tenant and token holder. The tenant can be one of those token holders thus receiving part of the total rent paid back for their own benefit — making fluid the bifurcated roles of owner and tenant.

Real Estate for ALL

Blockchain technology and smart contracts will break up the arcane and limiting legal structures that govern the distribution of real estate. Our need for shelter will no longer be at odds with our desire for mobility and financial security.

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Notes on proptech, blockchain, economics and finance

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Myles Clarke

Myles Clarke

Notes on proptech, blockchain, economics and finance

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