Reports of property sold for Bitcoin are steadily becoming more frequent; a few BTC can buy you a beachfront condo in Cyprus, Miami saw the first Bitcoin-only real estate purchase in December 2017, and New York City — the real estate capital of the world — had its first two bitcoin-for-real-estate transactions this past May.
Though these real estate Bitcoin purchases are becoming more common, is a new form of payment enough to officially declare the real estate industry “evolved”?
Real Estate is Ripe for Disruption
Real Estate is often called an archaic industry, and not without reason. While dozens of marketing and property discovery platforms have emerged, standard operational practices remain behind the curve.
With the complex process of executing real estate transactions, most home buyers and sellers choose to complete their transaction with the help of an agent, even though 51 percent of homes purchased in 2017 were found online by home buyers. It’s not uncommon for landlords to request that rent be paid with a mailed-in check, although countless online payment vehicles exist today. And, of course, with all the regulatory hurdles involved in purchasing real property assets, it’s not surprising that real estate is known to be a particularly illiquid investment.
These practices can certainly be disrupted by blockchain ventures. The question is whether regulators and existing players will welcome this disruption, or try to block it.
The Blockchain Evolution: Real Estate
Countless ventures are joining the blockchain revolution. ConsenSys, a blockchain studio building decentralized applications, appears to be dedicated to a more gentle approach: the blockchain evolution. While many companies try to circumvent regulations and challenge the status quo, ConsenSys aims to find a happy marriage between innovation and regulation.
On May 31, 2018, ConsenSys-incubated company Meridio (previously Pangea) held a panel to discuss emerging business models in the real estate space, regulatory hurdles, and the benefits of fractional ownership, as well as present a sneak peak of their investment platform.
Meridio's venture began with Landstream, a company focused on developing a private chain land registry system for Dubai Properties Group. From that project, the team was inspired to develop a platform that would simplify fractional ownership of property. Meridio aims to lower the barrier for foreign and domestic investors to invest in real estate, reduce associated fees, and bring more liquidity to a traditionally illiquid market.
“We need a better way to transact and own real estate. And today’s existing models have typically not allowed that level of access… Tokens, or digital shares, do an amazing job of not only allowing asset owners to [convert their assets into shares] but allow investors to trade them among themselves,” said Mo Shaikh, co-founder of Meridio.
The platform allows asset owners to tokenize shares of their property, and sell the tokens to investors. Presently, the available assets are private placements limited to accredited investors, though publicly registered assets are also in the pipeline.
Through Meridio’s interface, investors can view a list of properties, both commercial and residential, and examine their rental income, token appraisal value, and several other key facts — including a breakdown of the token distribution between sponsors, management, and investors. Investors are able to purchase tokens by sending a proposal to one of the owners, who must approve the sale, and may then transfer the token to their ERC-20 wallet. Should they want to sell the token, they can only do so to another KYC approved (and currently, accreditation status verified) address.
By offering fractional ownership and a token-based trade, Meridio is eliminating the need for investors to hire a title agent, real estate broker, or lawyer, thus dramatically reducing the costs associated with individual asset investments. As opposed to REITs (real estate investment trusts), such a system doesn't require the use of a local fiat currency or access to a traditional banking system. Those with limited banking access, or with increasingly volatile local currencies, could find a safe, stable, and liquid investment to hold their money. By using blockchain as the backbone of their platform, they aim to make it easier for people to invest in property around the world.
In Meridio's current stage, many aspects of the venture seem antithetical to the ideals of blockchain. In the alpha demo, the names of a property’s owners are public to potential investors; trades are made between individuals rather than through an anonymous exchange (which could lead to prejudiced decisions) and the tokens cannot be transferred seamlessly between wallets, as each wallet address must be verified and whitelisted by Meridio in order to receive the tokens.
The founders recognize this, but say that their current model will surely evolve with time. Future models may offer anonymity between investors, and they plan to open up to non-accredited investors down the line — so they can further lower the barrier to entry.
Striking a Balance For Disruption and Adoption
At the Spring 2018 Ethereal Summit, Joe Lubin, founder of ConsenSys, said “I like calling [blockchain] an evolution, because we need to take this technology and these breakthroughs and integrate them with all other elements of society, so it’s a little less confrontational.” At the recent panel, Meridio’s founders seemed to echo this key principle of the disruption process: Approach the challenge in a manner that will lead long-standing players to view you as an asset — rather than a threat — so that they may evolve with you.
The Meridio team argues that, with current regulatory standards, the platform needs to strike a fair balance between centralization and decentralization. Investors need assurance that their ownership is legally defensible, and government organizations insist on maintaining transparency and full disclosure in property ownership.
While Dubai's regulators have shown enthusiasm for blockchain innovation, the process could be lengthy within other countries. The Meridio project aims to lower barriers for investors to own property globally, and will require careful cooperation between the team and regulators around the world.
Blockchain technology may not be the solution to all challenges in the real estate industry, but it could be the catalyst needed to make single-asset investments easier and more globally accessible.