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Tokenization of Real Estate: How To Divide A $30 Mln Mansion And Sell Off The Pieces

10 October 2018 18:06, UTC
Oleg Koldayev

The mansion in Manhattan priced at $30 million was transformed into digital coins and sold in parts. Not in the physical sense of the word, of course, but in legal and financial terms. “With tokenization on the blockchain, we can get rid of the conditions imposed by traditional banks,” the estate agent Ryan SERKHAN says. “It will be useful for the project and all interested parties.” So, is the era of mortgage services receding into the past?

One has to agree with the American specialist. Although he did not express this idea directly, the ghost of the crisis of 2008 is still wandering through the streets of American cities. Many people remember the real estate boom of 2004-2007, which began after the crash of the dotcom market. Then, for the first time, Americans began to perceive the house not as a fortress, but as an object for investment. By the way, it was during this period when a serious ideological turn took place in the United States. Crises of family values ​​and professional identification are the inventions of that time.

The technological boom associated with the penetration of the Internet into all areas of existence gave birth to the maxim, which states that constancy is a feature of stagnation. This implies that it is impossible to tie oneself with one person for a long time, or that work should be changed every five years. And after the first failures of the dotcoms, real estate became the most attractive object for investment. Banks reacted to the hype, and the competition between them generated 120-130% of the mortgage services with a minimum down payment. Credit obligations were combined into derivatives, where the share of “toxic” loans sometimes reached 70%. Securities were actively traded at various financial platforms. The speculation began. But then, the demand began to subside, the first crisis in the development of Internet technologies started, and the market collapsed.

Moreover, the mortgage crisis revealed another deep-seated problem of real estate turnover in the United States: a terrible mess in legal statuses and norms. It was not easy really to understand what, to whom and on what grounds belongs in the condition of mass bankruptcies. The norms governing property rights differed not only from state to state but also from city to city. Lawyers went crazy, looking for the ends of a transaction.

All this resulted in the fact that the purchase and sale of residential and non-residential properties in the United States stopped for some time. We can say that it stopped for 10 years. Until the tokenization of real estate occurred. That is, the property right was divided into several parts and a separate virtual asset on the well-known DLT platform was released for each of the parts.

You can treat digital technologies in different ways, but the emergence of virtual coins in legal reality can make a small revolution. Moreover, they cannot be called coins anymore. These are rather digital title documents, whose authenticity and legal force are confirmed by the records in the decentralized registry.

In other words, this instrument can be named title-coin – a coin confirming a title and the property right.

"The real estate market in New York has always been top, but it may take some time to sell a new building at the right price," Ryan SERKHAN emphasized. "Tokenization lays the way for the new avant-garde in its development."

And, of course, this is a real way to increase the efficiency and the speed of real estate turnover and to make low-liquid assets, such as expensive houses, more liquid. By attracting buyers of modest means. But, to tell the truth, this technology has one big disadvantage - the absence of the legal status of virtual assets.

From the point of view of the modern legislation in most countries, it is very difficult to relate a token to a specific value object. Lawmakers and law enforcers have not invented a legally legitimate procedure for issuing digital coins yet. Also, the evidential standards of DLT-transactions are unclear. Judicial precedents for the use of records in the decentralized registry are available only in China now. The risks are still high, but the technology is only beginning its way.

Of course, the piecemeal sale of a 12-room mansion (1700 square meters each) is far from being the first case of a property rights split. And tokenization is also not performed for the first time. For example, participants in the Maecenas art auction purchased 31.5% of Andy Warhol's paintings in digital assets. But the example of real estate is the most illustrative. Here, it is appropriate to recall that Columbus didn't discover America either, but he outlined a new trend. He did not discover it but provided the consequences.