A Twist on the Game of Monopoly — Tokenising Real Estate

Catherine Cashmore

‘There are millions of people who want to own property and don’t have a way to do it.

‘The reason they don’t invest is that there are huge barriers.’

The comments come from Ryan Frazier — chief executive officer of a new US start-up called Arrived Homes.

Arrived Homes offer low-income Americans shares in rental properties for as little as US$100.

They claim it’s an ideal way to forego the cost of buying a rental property — cutting the time it takes to find one and overcoming the confidence to take the plunge.

The company hit the headlines recently because it’s just been backed with a whopping US$37 million in equity and debt from a group of heavyweight investors.

This includes Bezos Expeditions, the personal investment company of Amazon.com, Inc — founded by billionaire Jeff Bezos — and Marc Benioff’s Time Ventures. 

Arrived Homes is taking advantage of a new regulatory framework in the US that allows it to sell shares in individual properties to US residents.

That’s regardless of the investor’s wealth or income. 

It sounds like the same recipe that took us into the 2008 GFC.

This new form of investment is known as fractional ownership.

In Australia, companies such as BrickX and Estate Baron broke the ice on fractional ownership models a few years ago.

BrickX now has more than 13,000 members and currently holds more than $19.7 million of property. 

In 2019, ASX-listed DomaCom went further, finding a way to offer a product that allows parents to leverage their SMSF to purchase property that their children legally tenant. 

‘The bank of mum and dad already provides $30 billion of support and we believe this could be a much larger amount’, said DomaCom founder Arthur Naoumidis.

Now they’re hoping to take advantage of profits available in the affordable housing sector — teaming with Community Housing Provider BlueCHP.

The plan is to use retail investors to fund the purchase of sites from developers below market prices.

‘We can go in and take existing stock now. We buy them off developers,’ Naoumidis told the Australian Financial Review on Monday.

The homes will be offered to key workers with rental prices at 75% of market rates.

DomaCom will set up a fund for each home, with units in the fund representing ownership.

‘The tenant receives 1 per cent of the equity in that fund when they move in and a further percentage point each year up to a maximum of 5 per cent, as a way to give tenants equity in the housing market and also as an incentive for tenants to rent the homes in a competitive market.

‘At the end of 10 years when the property is sold, profit is realised by owners of the units, including the tenant.’

According to CoreLogic, in 10 years, fractional property investing could represent 10–20% of the total property market in Australia. 

Likely it will be more.

Direct ownership of real estate was always touted as a long-term game.

It’s ‘time in the market, not timing the market’, say the real estate spruikers.

But fractional investors don’t have to wait for months or years to earn returns.

Trading and transferring rights can be done on a blockchain platform — seamlessly realising profits with investment across a broad range of geographical locations.

No stamp duty or sales agent fees to pay.

When it comes to blockchain, there’s a lot more going on than just rising cryptocurrencies (as my colleague Ryan Dinse explains here).

Decentralisation is going to transform the way we do everything over the coming years.

It’s a brand-new game.

With blockchain technology at the core, it’s fairer and more transparent.

But it’s also allowing oodles of money to flood the real estate market — far more than we’ve seen in previous cycles.

New generations now have ambitions to own a token of real estate rather than their own home.

They’re already well used to the term ‘rentvestors’.

And when it comes to blockchain technology, land is where the money always washes up in an economy bent toward real estate speculation.

Still, this transition presents lucrative opportunities for those that understand the real estate cycle.

You don’t want to get caught out on that.

Tick-tock goes the real estate clock into 2026, as we explain over at Cycles, Trends & Forecasts.

Best wishes,

Catherine Cashmore,
For The Daily Reckoning Australia