Exclusive: Why Fractional Property Ownership is a Double-Edged Sword?5 min read
by Matthew Lam | May 14, 2019
Exclusive interview with Natalia Karayaneva: Part 1
The emergence of blockchain has revolutionized the real estate market by enabling fractional property ownership, which retail investors can access to real estate investments without huge capital restrictions. However, Natalia Karayaneva, CEO of Propy, revealed to us why fractional property ownership is a double-edged sword! She also indicated the 4 key pain points of property market which can be addressed by blockchain!
What are the pain points in the real estate industry? How blockchain can effectively tackle these problems?
The real estate industry has been quite slow in terms of implementing new technologies. Here are the main pain points where blockchain can help:
- $1billion wire fraud problem and complex purchasing process
- $10bn Title Company industry, which doesn’t exist in the majority of countries, the industry issues $10bn insurances annually to cover the lack of data integrity between title registries and banks.
Which pain points in the real estate industry cannot be solved using blockchain?
As of today, paper logs of title deeds are still required by many recorders’ offices. However, we believe that traditional authorities will embrace blockchain in order to create a customer one paper based registry, which will transition to digitization via utilizing Propy interface and blockchain backend, thus skipping one step that other counties did (skipping utilizing old school registries).
Also we believe that agents will not be eliminated by blockchain. People will need human interactions as well as someone needs to see the home for evaluation as there are many subjective characteristics in the built environment.
Blockchain is a relatively new technology. It is the future and so its importance and application will continue to expand.
The use of blockchain leads to a surge of fractional property ownership transactions. What are the implications for investors?
Fractional property ownership is a double-edged sword. You can choose your level of involvement, you don’t have to buy the whole property, and that opens the possibility to a lot more investors to become partial owners. What we lack so far is liquidity and security exchanges with a reasonable volume. Supply will come. Institutional investors will be the first one to adopt this new vehicle for investments in real estate by learning how to use crypto custody solutions and liquidity providers. There are a number of startups writing smart contracts for security token offerings backed by real estate, so the technical level of the industry is quite advanced. The business level is still behind to start the adoption, but I am a true believer that tokenized real estate will become a mainstream investment tool in 5 to 10 years.
Typically, a property purchase transaction often leads to conflict of interest as it involves various stakeholders like buyers, sellers, property agents, banks and lawyers. How blockchain can serve the best interests of each stakeholder?
It is very hard to validate property information. Usually, you need an army of different stakeholders (~80 in the US) such as lawyers, two agents, a broker, escrow/title company, transaction coordinator, notary and the buyer and the seller. The more the parties involved in a sale, the higher the odds to miscommunication are. Blockchain technology provides a safe and transparent environment where there is a balance of power. No party can misuse sensitive data to prevail over another participant in а transaction. Data is simultaneously recorded and with immutable logs. Communication is easy and streamlined because everyone has the needed access to the relevant information and there is a trust that none of the parties can cheat the system. If they try - everyone will notice and take measures.