Blockchain and The Ownership Game
Further into blockchain use cases in the real estate industry, we will discuss the technology’s implication on widening ownership in real estate. This is the second part of the 2-part series of articles on Real Estate.
Some general concerns around property ownership include:
- Inaccessibility to a Home-Specifically for the middle class where means to purchase an asset depends on income, affordability, and availability. These barriers severely hinder investment into real estate and limit investors to the wealthy kind.
- Ridiculous Transaction Costs-The increased transactions costs are a result of the number of agents or middlemen involved in a transaction. For the simple purpose of physically or otherwise putting the buyer and seller in touch, these agents charge fixed percentages on total sale value which result in exorbitant amounts.
- Illiquidity of Assets-Real estate investments are generally considered illiquid due to the nature of real estate assets. It may be difficult to make an immediate sale at any given instance due to unavailability of credible buyers or unavailability of buyers who can afford the property and so on.
Blockchain as an Equaliser
Fractional ownership of assets could drive investment from investors of all income ranges and bring inclusivity to the industry. It solves problems of illiquidity of assets by creating digital assets called tokens which are derived from an underlying asset and allow these tokens to be traded as and when the investor pleases. This is also appealing to investors who do not want to incur the costs of owning and maintaining the entire property but still want to own a piece.
For this article, we will only briefly discuss tokenomics and dive into real-world used cases to understand the potential of blockchain to disrupt the real estate ownership game.
Tokenomics
Token economics could be simplified as the study of an ecosystem designed in a blockchain environment. Tokenisation has become a popular process among blockchain projects. The token represents a digital asset, and its function may vary for different ecosystems. For example, it could be a representation of value, stake, voting or anything.
Depending on the design of the ecosystem, a security token or utility token can be used. But, what’s the difference?
- Utility tokens-when a token is used to avail products or services on a platform, and its value is derived from the volume of people using the platform, it is known as a utility token.
- Security tokens-These tokens derive value from some tangible asset and offer its holders a range of rights which include entitlement to profits, ownership or equity in a legal entity.
The line between these two categories of tokens is fine and regulatory framework is not clear about the criteria for qualifying a token as a security or a utility token.
Practical Application:
Relex Development
Relex development is a real estate company that has an FDI development portfolio across the world since 2014. They have created a real estate development investment platform with the goal of streamlining foreign direct investment into emerging economies.
They use an Ethereum based token called RLX which essentially allows it holders to invest in projects in the development phase and reward their holder in return with passive income, equity stakes or proxy ownership of the property.
The biggest issue with capital entering emerging markets is lack of transparency. By using blockchain, Relex can remove the trust factor with financing placed on dodgy brokers as transactions are easily traceable and transparent using RLX tokens.
Not only does the RLX token enable transparency but facilitates property developers to gain access to easy funding. By tokenising the property, Relex allows investors from all over the globe to contribute funds with ease as opposed to complex normal routes of financing to invest in other markets. It also allows its token holders “proxy developer” rights which means the investors are able to interact with the developers directly and provide their valuable insight into developing projects.
How do the RLX tokens work?
RLX token is currently priced at US $0.000421on coinmarketcap.com and is listed on multiple cryptocurrency exchanges.
Once their development partner identifies and negotiates a new real estate development contract, the investor signals interest in the project by sending some RLX to the developer signaling wallet. Once the developer sees an adequate amount for signaling from investors, the wallet address for contributions will be open. After this process, the development contract is released to its investors and using the investment platform they send RLX to the developer’s wallet to be used to develop the specified project. When the developers finally distribute profits, it is returned to the investors in the form of ETH (Ethereum) bonus.
PropertyShare
The business model of PropertyShare is quite literally fractional ownership. They are a Bangalore- based startup and has placed more than 75,000 sq ft of commercial real estate available up for fractional ownership in locations like Bangalore, Mumbai, Hyderabad, Pune and more cities listed to follow, effectively opening the market to retail investors.
PropertyShare is using many elements of blockchain technology which allow:
- Smart Contracts-All their contracts are signed digitally eliminating the need for any physical presence.
- Immutability-The name and signature of all parties with timestamp and IP address are recorded, stored and distributed through an online audit report.
- Transparency-The title report, title history, approvals, property papers, occupancy certificate are made available on every investor’s dashboard.
Among which fractional ownership remains most significant.
Their experienced investment team conducts rigorous due diligence on prospective projects and once approved are listed on the property share platform. The investors are able to browse through the listings and invest as little as US $7000 to own a fraction or diversify their investment into multiple projects and locations. The investors are entitled to rental income proportional to their fractional ownership credited monthly and can sell their fraction at any given time at current market prices on the property share resale platform to make gains. The investor can track all information regarding rental income, property valuation, share in many properties and so on in real time on the investor dashboard.
Robert Kiyosaki, an American businessman and author said,”Your house is not an asset, it is a liability.”
If fractional ownership can overcome regulatory challenges and become adopted more widely, it has the potential to significantly change the dynamics of markets that have until now been the near-exclusive domains of major landlords, for example, Hong Kong and Singapore.
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Envisioning a world without intermediaries.
Sabarish Nair
Blockchain Analyst
