What if you could put your bitcoin (BTC) or ether (ETH) as collateral to buy a house?
That’s essentially the idea behind real estate firm Propy’s upcoming sale, a condo located in Honolulu, Hawaii, which is selling for a starting price of $250,000. If they choose, the potential buyer will be able to take out a loan with Propy to acquire the property – as long as they provide 100% collateral in bitcoin or ether and mortgage the property as well.
“It’s a good proposition for bitcoin holders,” Natalia Karayaneva, CEO of Propy, told CoinDesk in an interview. “It is not a taxable event. They get a loan and buy real estate with it instead of leaving bitcoin, paying taxes, and then buying real estate.”
It is a two-year loan and it comes with 10% annual interest. If the given cryptocurrency’s value falls more than 50%, the buyer will face a margin call; at worst, the crypto holdings may end up being liquidated and the property resold at an auction. However, if the cryptocurrency doubles in price, the buyer may end up paying back the loan simply through their gains. The interest payments and the loan itself can be repaid in bitcoin, ether or USDC.
Another important aspect of the deal is that the property has been tokenized. Launched in 2017, Propy aims to bring real estate transactions on-chain, thereby speeding up settlement times and liquidity. In the case of the Hawaiian real estate sale scheduled for January 29th, a potential loan will be processed immediately and upon completion of repayment, a buyer will automatically be able to recover their crypto.
“This is not just a milestone; it is a glimpse into the future of real estate,” said Karayaneva. “We are demonstrating how blockchain technology can simplify home buying and replace the traditionally lengthy loan approval process with an immediate, efficient solution.”
Purchase of real estate on-chain
Based on the Ethereum layer 2 solution Base, Propy does not tokenize properties on a regular basis, at least not yet. More often than not, the firm simply uses smart contracts to speed up real estate purchases and reduce legal fees. “The main business comes from normal consumers. They don’t even know we use smart contracts on the back-end, but they love how fast and transparent the whole process is,” said Karayaneva.
When it tokenizes a property, the firm creates an LLC for the property in the county registry and then creates a token, a process that takes about two weeks. Upon acquisition, the LLC is amended to reflect the change in ownership and the property’s token is transferred to the new owner.
Right now, pure crypto-native deals account for only about 5% of the company’s volume, according to Karayaneva. One of these deals, for example, involved TechCrunch founder Michael Arrington turning his apartment into an NFT. Propy also auctioned a 17th-century Italian mansion on the blockchain back in 2017. “We haven’t done many of these transactions yet because we needed the loan product in order for us to scale,” she said. “People need a mortgage or a loan to get real estate exposure.”
Propy also provides escrow services in partnership with Coinbase, aiming to support the crypto community in making property purchases in crypto. For example, the escrow service helps bitcoin holders avoid wrapping their holdings in ERC-20 tokens like wBTC.
Once a property has been tokenized, nothing prevents the buyer from eventually selling it to another crypto-native without necessarily going through Propy. If the token is sent to a new wallet, the buyer is automatically given a link to provide Know-Your-Customer (KYC) information; their name will subsequently appear in the LLC as the property owner. And the buyer can also unbundle the property from the LLC and own it the traditional way — a process Karayaneva called “un-chaining.”
“Our primary goal is really to chain as many real estate assets as possible,” Karayaneva said. “Imagine doing an on-chain swap between a property’s on-chain asset and bitcoin asset or some other crypto asset. … It’s a $300 trillion market. Imagine if it becomes liquid.”
Read more: Propy teams with Abra to offer real estate purchases backed by Crypto
