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A number of sectors are suffering the negative impact of the COVID-19 pandemic, including the US housing market, which is valued at $ 33.6 trillion. Recent findings from Zillow, an American online real estate database company, show that despite low mortgage rates, the coronavirus has slowed the US housing market considerably.
In addition, the number of severely insolvent mortgages – those overdue by 90 days – doubled from May to June, reaching its highest level in more than five years. In an effort to revitalize the real estate market, some real estate companies are turning to blockchain concepts, such as tokenization and smart contracts, to replace traditional processes.
Tokenization of real estate
Matthieu Bouchaud, a senior product manager at Codefi Assets ConsenSys – a suite of blockchain applications that works with companies to digitize financial assets – told Cointelegraph that COVID-19 has significantly slowed the issuance of real estate mortgages. As a result, Bouchaud said real estate companies are exploring new techniques such as tokenization to distribute smaller properties or fractional properties at lower costs:
“Tokenization simplifies the maintenance of the register and the distribution of shares of companies that own real estate or managers of real estate assets. Due to COVID-19, loan-to-value ratios have become stricter, and businesses that rely on their clients’ lending capacity to distribute real estate are struggling. Therefore, they are exploring new distribution techniques such as tokenization. “
Codefi Assets is currently working with French real estate fund management firm Mata Capital on the tokenization of real estate assets to ensure greater investment participation. The Codefi – Mata Capital case study states that the long-term vision is to reduce investor minimum subscription amounts from € 100,000 to € 1 to attract more users.
Mata Capital has partnered with Codefi Assets to issue security tokens for three separate funds for a total value of 350 million euros. The first of these tokenization projects would allow a number of investors to own part of an 11-story hotel currently under construction in Paris.
As for the US real estate market, RealT is a blockchain company that offers a tokenization platform for investors interested in the US real estate sector. The company allows global investors to buy in the US real estate market by offering fractional and tokenized properties. The ownership of the real estate listed by RealT is denominated by digital tokens called RealTokens, which are based on the Ethereum blockchain.
Through tokenization, real estate investments are expected to ultimately become more affordable and accessible to a wide range of individuals, making it especially tempting during a pandemic-spurred financial crisis. For example, a single token for RealT properties costs anywhere between $ 50 and $ 150, considerably less than traditional real estate investments.
Tokenization also allows for the separation between tenant and owner. Venture capitalist and well-known Bitcoin investor Tim Draper recently revealed in an interview that he finds tokenization exciting for this:
“Tokenization is exciting because it means someone could only buy one piece of my house without buying the whole thing. And it nicely separates the tenant from the owner. I would sell a piece of my property that that individual would pay rent to use it. “
Real estate becomes paperless
Bouchaud also pointed out that tokenization allows companies to move away from manual paper-based processes, which have become a risk to the global economy due to COVID-19.
Wealth managers such as Mata Capital typically rely on paper to manage their investor ledger. Digitizing this process by having virtual investor accounts with Know Your Customer documents loaded would allow Mata Capital to go completely paperless. RealT also replaces traditional paper documents with digital tokens that represent ownership of assets based on the Ethereum blockchain.
Blockchain solutions also make it possible to use smart contracts for property settlement. In turn, this creates a secure transaction automation process. Natalia Karayaneva, CEO of Propy – a blockchain-based real estate startup – told Cointelegraph that there are currently three things required for a real estate transaction agreement to occur:
“An individual must complete the required documents, then submit a payment. If the payment is submitted and ownership of the property is cleared, the request is transferred and the payment is released to the seller. The” if “and” then “rules are all programmable and can be put into a code. The best solution for this type of self-executing code today is within a smart contract. “
According to Karayaneva, smart contracts used for real estate transactions are not necessarily necessary due to the COVID19 pandemic, however, most transactions take place online nowadays and real estate companies have shown interest in these digital solutions.
Karayaneva shared that US real estate agency Re / Max Plus uses Propy technology to address transaction speed and fraud prevention, while having an overall transparent process for both home buyers and sellers. He explained that Propy works with brokers such as Re / Max Plus by providing a blockchain-based transaction system for agents and transaction coordinators. Agents, buyers, sellers and lenders sign and complete documents in one secure online environment.
Pete Zizzi, team leader of the Zizzi team with Re / Max Plus, told Cointelegraph that Propy’s technology has helped eliminate the need to install multiple systems to manage transactions, allowing agents to conclude deals transparently and efficiently.
COVID-19 can drive real estate digitization
Though revolutionary, Bouchaud is well aware that the real estate industry requires more education about blockchain technology in order to make improvements. In addition to that, Karayaneva explained that blockchain isn’t always part of the conversation Propy has with its real estate clients. “Many broker-owners realize that blockchain is the future of real estate, but fail to understand its practicality. This is why when we offer our product to customers we only discuss the visible benefits in their daily work, “he said.
However, regulatory challenges continue to loom, especially around tokenization. Outdated regulations on digitization also hinder adoption. Max Simkoff, founder and CEO of States Title – a San Francisco-based securities insurance company – said in a recent American Express blog post that while the technology to conduct paperless property closures has been available for years, ” outdated and the industry’s reluctance to abandon traditional practices has hindered the transition. “
