n Tuesday, an initial coin offering launched by the real estate startup Propy Inc. sent shockwaves throughout the blockchain community. The tokenized fundraising campaign raised more than $5 million, attracting investors like billionaire TechCrunch founder Michael Arrington. Demand for Propy’s tokens, called PRO, was so high it overloaded the Ethereum network.
Although the final earnings tally isn’t in yet, because of the peak in Ethereum transaction volume, PRO token sales aren’t expected to be a record-breaking sum like recent ICOs by Filecoin or Tezos. It’s not the cash that set tongues wagging; It’s Propy’s radical combination of cryptocurrency and Ethereum-based smart contracts, which could revolutionize the global real estate market. Propy’s approach could turn property into a highly liquid investment, easily tradable via a digital marketplace. This idea could fundamentally change the concept of real estate investments.
“If you’ve ever purchased property, it’s a particularly cumbersome transaction,” Aaron Wright, co-director of Cardozo Law School’s Blockchain Project and newly appointed chair of Enterprise Ethereum Alliance ’s legal working group, told International Business Times. These transactions take time because there is so much paperwork, mountains of paperwork. What if blockchain technology created a simple, smooth way to condense that data, verify it and send it across the world in mere seconds?
Then there’s the issue of payments. With the kind of money real estate investments require, it’s rarely as simple as writing a check or sending a single wire transfer. Propy has seven different types of smart contracts, including ones that work with a money transmitter to automatically transfer ownership once payment has been processed. Another smart contract in development will notify local governments about the property transfer and taxes. “We help the government not interrupt the deal, but to get the information about the taxes,” Propy CEO Natalie Karayaneva told IBT. These smart contracts are only the tip of Propy’s iceberg.
The San Francisco-based startup already established on an online marketplace where international investors can shop for real estate in several languages. Eventually, the platform will enable peer-to-peer trading, like a cryptocurrency exchange for property investments. This will take a little more time for American buyers, because of the local legal framework. However, Karayaneva said the P2P conduit will go live much sooner in other countries, possibly within the next year or two.
“In other countries, such as the Ukraine, we are already signing an agreement that they will use our blockchain, primary ledger as a base for storing and changing title deeds,” Propy CEO Natalie Karayaneva told IBT. “With several governments, we are in negotiation with them to use our blockchain ledgers so they can make their country’s real estate market transparent….so foreign investors will trust their land registry and will have more liquid opportunity to trade real estate.”
Some of the biggest names in the tech and real estate industries are backing Propy, including Jeremy Gardner of Blockchain Capital and real estate mogul Alain Pinel. JLL, a leading real estate and investments management firm, already signed an agreement to use PRO and Propy’s blockchain property deeds in cross-border transactions, regardless of whether the local governments recognize electronic contracts yet.
According to Wright, the U.S. has a solid legal basis for electronic contracts. Smart contracts are considered legally binding on a federal level. On a local level, some jurisdictions are taking that a step further, not just allowing electronic contracts but facilitating them. Cook County in Illinois already ran a successful pilot program for blockchain property records.
“Let’s say I’m in another country and wanted to enter into a transaction in Cook County, it would be a lot easier for me to do that,” Wright said. “I wouldn’t have to come physically to the U.S., interface with county offices, in order to effectuate a real estate transaction.” It’s not hard to imagine Propy’s Amazon-style real estate store offering both P2P and more traditional property sales, using blockchain technology for everything from recordkeeping to the purchase itself. “The closing of the transactions is now in the prototype phase,” Karayaneva said.
In order for this idea to really take off, it would need widespread government support because governments maintain the land registries themselves. Like many startups relying on smart contracts, ultimately the technology’s full potential will only be realized if legal decision-makers get on board. “A lot of the contemplated use cases for blockchain technology ultimately reduce down to legal technology,” Wright said. “Talking about new agreements and new ways to memorialize commercial relationships.”
EEA’s newly established legal group, with members from 14 top law firms and legal institutions, could work together almost like a bar association. “If a whole bunch of law firms say this is the way we are going to construct these smart contract programs, and the agreements that rely on those programs,” Wright said. “Well, you know what, that probably will influence how other countries and other parties view that.”
Wright said the EEA’s legal group is sign the blockchain industry is maturing. If blockchain contracts overall continues to garner legal support, Propy’s approach could dramatically simplify international real estate investments. “Instead of 20 middlemen, they [buyers] will have only one broker. And he will also be online,” Karayaneva said. “It’s so easy, they [investors] will also have the feeling they can easily sell it. So the market will be really liquid.”
Karayaneva, a real estate veteran from Bulgaria who came up with this startup idea after years of helping international investors buy property in Europe, said Propy’s blockchain approach could triple the global real estate market. It would also drastically reduce bureaucratic fees. PRO will be the cryptocurrency at the crux of it all, unlocking ownership transfers and contract changes. There are 100 million PRO tokens, with only around five million sold so far. The plan is to use tokens to attract new investors and invigorate the market as the network grows.
Within two years, most of Propy’s innovations should be up and running. “We’ve seen an incredible demand for our tokens already,” Karayaneva said. “We’ll see transactions happening in real-time. We’ll see kind of like a Bloomberg terminal for stocks, but for real estate.”