Web3 solutions may be the answer to America’s housing market, but will the mainstream want to use blockchain-based platforms?
The US housing market could soon be poised for another bubble as house prices across the country continue to be fueled by demand, speculation and lavish spending, which could result in a crash. Additionally, due to rising mortgage rates, many homeowners are choosing to stay put, causing a housing shortage.
Data from the Federal National Mortgage Association, commonly known as Fannie Mae, shows that 92% of homeowners believe their current home is affordable. However, the results also show that 69% of the total population, made up of both homeowners and renters, believe it is becoming too difficult to find affordable housing.
Web3 and the real estate market
While the fate of the real estate market in the United States remains unclear, the development of Web3 business models based on non-fungible tokens (NFTs), blockchain technology and cryptocurrencies aim to address many of the problems currently affecting the trillion dollar US real plague housing market.
Jerry Chu, CEO of tokenization platform Lofty AI, told Cointelegraph that while real estate is one of the top asset classes for wealth creation globally, most people don’t have access to it for three main reasons:
“Real estate is expensive these days. Even if someone can get a mortgage, in many cases the down payment requires too much cash. The real estate process is also frustrating as mortgages need to be approved and the escrow process can take up to 60 days. After all, there isn’t much liquidity in real estate, so sellers are likely to lose money trying to liquidate quickly.”
To make real estate accessible to the masses, Chu decided to create a platform that could fragment ownership. Chu explained that the platform, known as Lofty AI, is built on top of the Algorand blockchain and consists of various turnkey rental properties that multiple investors can purchase for as little as $50. “Each property can be thought of as its own mini-blockchain on the Algorand network. Assets or unique tokens are created for each listed property. The supply of tokens varies depending on how expensive the properties are,” Chu said.
Although the concept of real estate tokenization is widespread — for example, a recent Cointelegraph study showed that the real estate sector accounts for 89% of all security tokens traded — Chu noted that Lofty is an active investment platform. “Platforms like this invest in real estate and resell properties to clients, but we allow investors to manage those properties and consistently earn rewards and revenue.”
Property featured on Lofty AI. Source: Lofty AI
During development, Chu explained that Lofty is based on a cross-ownership model, where the title deeds for each property for sale are owned by a limited liability company, or LLC. When investors buy tokens, they immediately become members of that organization, meaning they own a percentage of that business.
Like other decentralized finance (DeFi) platforms, Lofty has a governance system that allows token holders to vote on how their ownership is managed. “Token holders must achieve a qualified majority of 60% of the votes for decisions to be made. The winning vote is then sent to the property manager for execution. These decisions can include child support, rent changes, eviction decisions, and more.”
Chu added that investors can also receive a portion of renters’ rental income, which can either be withdrawn into a bank account or donated to Mercy Housing, an affordable housing organization. “Most Lofty users care about increasing the value of their tokens for the properties they buy, so they donate their earned income to affordable housing programs,” Chu said.
While that may be the case, Chu stressed that Lofty’s goal is to make real estate investing more accessible. “This appears to be the case as the platform launched last year and already has around 4,000 users,” he said. Takahito Torimoto, solution architect and user of Lofty, further told Cointelegraph that while he has been a real estate investor for several years, Lofty is the ideal solution given the platform’s liquidity and profitability. “Users are not charged, and given the current real estate market, Lofty seems like a lot