How blockchain could make property ownership available to all
Of all the potential ways in which blockchain could revolutionise society, perhaps none will have more impact than its ability to allow people to own a share of a property.
The growing disparity between earnings and property prices, particularly in the UK, is making it harder for ordinary people to get on the housing ladder.
Shared ownership is one solution to the housing crisis that has been available in the UK for several years.
Under shared ownership, the buyer acquires a fixed percentage of a property and rents the rest. In most cases, owners have the chance to increase their equity stake as and when they can afford it, a process known as ‘staircasing’.
However, to be eligible for shared ownership you have to meet strict criteria, as outlined on the Share to Buy website. They include:
- Outside of London your annual household income must be less than £80,000
- In London your annual household income must be less than £90,000
- You should generally be a first-time buyer, ie you don’t already own a home. If you do already own, you must be in the process of selling it
- You should not be able to afford to buy a home suitable for your housing needs on the open market.
Shared ownership on blockchain
Eyal Malinger, an investment director at venture capital fund Beringea, believes open ledger technology could revolutionise property ownership by allowing anyone to buy whatever size stake they wish in a property.
“Blockchain could open up this ownership model, currently only applicable to a small number of properties and accessible only to buyers meeting strict criteria, to all buyers, smashing the traditional own/rent dichotomy,” he says.
In an op-ed for VentureBeat.com, Malinger, who was formerly head of corporate development and venturing at UK property services company Countrywide, says the “attractions for both sides are evident”.
“The original owner enjoys a steady rental income without having to worry about void periods, rental fees, or property management costs; the renter gets a place they can call home, knowing it’s theirs to decorate and improve as they see fit.
“Smart contracts make this possible: Payments automatically adjust with the level of ownership, recorded on the blockchain ledger, and ongoing valuation of additional equity can also be automated.”
Malinger says some startups, such as Brickvest and Property Partner, are already looking at fractional property ownership. Blockchain would take this one step further, allowing people to buy shares in much the same way as they would buy shares in a stockmarket vehicle such as a real estate investment trust (Reit).
Blockchain would simplify and speed up the whole process, and the size, value and ownership of each stake in a property would be indelibly recorded on an open register.
Malinger also argues that a blockchain-based property ownership register could be hugely beneficial in countries where there has historically been a risk of fraud, or where there is no centralised land registry.
Giving everyone access to property
Darvin Kurniawan, founder and CEO of Crowdvilla, believes the property industry can use the nonprofit-blockchain business model to “democratise” property ownership.
“We can give people access to real estate by providing them with tokens that hold real-world value,” he says, writing in the Business Times. “This will democratise real-estate ownership and dilute the concentration of property ownership worldwide.”
He says the concept is no different to an agricultural commune, consisting of individual growers pooling their resources to harvest the grapes and sell their wine.
“We can do the same thing with real estate – find a community that would like to invest in and utilise properties and pool their resources together to achieve this in a sustainable and affordable way.
“We can all shape this new economy based on egalitarianism, unlocking access to assets that have traditionally been out of reach and held by the elite.”
Peer-to-peer property sales
US startup Atlant has developed a secure, tamper-proof system based on blockchain that allows users to trade parcels of property on its platform on a peer-to-peer basis.
Atland will help to subdivide property into tokens, launch a property token offering (PTO) and list the tokens on exchanges, based on Ethereum smart contracts.
The company claims this will “ease transfer of ownership, simplify fractional holding without minimal constraints, alleviate tax inefficiencies, make cross-border transactions simple, and eliminate substantial overheads”.
Atlant says its eventual goal, once government property registers are fully blockchain-compliant, is to make buy-and-sell transactions of smaller units of property commonplace.
Disrupting an ‘archaic’ property market
Another property ownership startup, treehouse, is due to launch this month (October 2018). The European-based project also says it wants to “democratise” property ownership and describes the current approach as “archaic”. It aims to “disrupt an industry long overdue for modernisation”.
Treehouse says its blockchain-based platform will allow people to benefit from the real-estate sector without the need for large amount of capital or specialist knowledge.
“For far too many, the dream of property ownership seems untenable, particularly in the majority of the world’s largest and most dynamic cities,” it says in its white paper.
“Regulation and legal complexity, high costs, time constraints, tax implications, location limitations, and the need for large amounts of available capital, make property investment an onerous affair – leaving a high percentage of willing investors unable to get onto the property ladder.
“Treehouse will change all that… we are facilitating a market where anyone can participate in the property market whilst removing the reliance on real estate agents altogether.”
Once a suitable investment opportunity has been identified and due diligence performed, treehouse will create a fund specific to that property that people can contribute to.
Once the funding is complete, smart contracts distribute global asset ledger tokens for the property (GALs) to everyone who has contributed. Smart contracts will then distribute rental income, and all documentation is stored on the blockchain so it is freely available to members. The GALs will be available to trade on Treehouse’s secondary exchange.
The organisation claims to be ethically motivated, and is launching a social responsibility initiative called the ‘treehouse foundation’ which will invest in environmental projects around the world.
Buying a stake in a hotel
While these projects are still at the startup phase, fractional blockchain-based property ownership is already up and running. Earlier this year, crowdfunding platform Indiegogo launched a real-estate sale that allows people to buy a stake in the St Regis Aspen resort hotel in Colorado.
The hotel is seeking to raise $18m of investment through the sale of ‘security tokens’, the property equivalent of an initial coin offering (ICO) – only in this case, rather than buying tokens in a potentially risky startup, investors are buying a stake in bricks and mortar.
Indiegogo co-founder Slava Rubin says his company is “excited about the world-changing impact and potential of security tokens”.
And he told The Verge: “In my opinion, cryptocurrency and security-backed tokens are two very different things. Hard assets are less speculative and they’re likely to pan out in the future.
“Imagine real estate – not everyone can own a piece of it,” said Rubin. “But with this method, they potentially could.”
Bypassing the property ownership logjam
For now, buying tokens in a piece of real estate such as the St Regis Aspen does not automatically make you a legal part-owner of that property – it’s important to differentiate between a property investment opportunity and fractional ownership.
But looking ahead, if property ownership records become embedded in the public blockchain, that could be the logical next step.
One day, in the not-too-distant future, you or your children might just be able to bypass the usual logjam of estate agents and solicitors, and buy a stake in a home of your own with just a few keystrokes.