Web3 might have the right solution to the American real estate challenges, but will the status quo allow it?
The American housing market is predicted to face a bubble as prices are pushed up by speculation and lavish spending. In addition, homeowners prefer to hold on because of the rising mortgage rates pushed up by the housing shortage.
According to the data provided by the National Federal Mortgage Association, 92% of homeowners consider the present situation of properties affordable. However, 69% of the population is finding it very tough to afford houses.
Web3 Meets the Real Estate Market
Although the fate of the US property market is unclear, the fast rise of Web3 business models, especially those anchored on blockchain technology, non-fungible tokens (NFTs), and cryptocurrency, is offering to solve most of the challenges.
Although the property market is among the best asset classes when it comes to wealth creation, Jerry Chu, CEO of Lofty AI indicates that people are unable to access it for a number of reasons:
- Very expensive.
- The process of acquiring property is frustrating.
- The liquidity is limited (sellers targeting to sell fast are likely to lose money).
To make real estate accessible to more people, Chu created a platform to fractionalize the properties. The platform is built on Agorand blockchain and comes with various TurnKey rental properties that allow investors to buy as little as USD 50. Think of a property as a mini-block on the Agorand network. Then, tokens are developed for every listed property.
LoanSnap, a mortgage lender, also unveiled a mortgage-backed stablecoin in their Bacon Protocol. Karl Jacob, the CEO of LoanSnap and co-founder of Bacon Protocol, added that while the mortgage-backed tokens are solving so many issues using stablecoins, the digital assets are also helping buyers and homeowners.
LoanSnap has created NFTs that are tied to individual mortgage liens, which are property ownership rights used to collateralize mortgage loans. Jacob explains that those NFTs are used for backing LoanSnap’s stablecoin, referred to as bHome token.
Another firm in Web3 is Blockchain Home Registry (BHM), which uses NFTs as a representative of homeownership. BHR is a Decentralized Finance (DeFi) platform established on the Ethereum blockchain, and it allows homeowners to claim a verified NFT of their properties. James Rogers, the CEO of Torii, the tech company that created BHR, explains that this gives them permanent and transferable historical data of their properties.
Challenges on the Way
The main challenge facing Web3 entry into real estate is whether it will be accepted. For example, Natalia Karayaneva, CEO and co-founder of Propy — a blockchain-based real estate platform, indicated buying homes sold as NFTs via Propy requires the use of USD Coin (USDC) stablecoin. This could be a challenge for non-coin holders.
Also, getting the traditional property market to adopt blockchain solutions might be pretty complex. Finally, legal issues might arise, especially when applying NFTs and DeFi standards to real estate transactions.