Why we opt for a Diversified Property Fraction
At konkrete.io we are focused on making housing affordable by allowing people to crowdfund their home deposits and enabling those with existing properties to be able to release equity without taking on additional debt.
We intend to achieve that using a Blockchain enabled fractional property solution. People can become co-owners by buying fractions of properties alongside others looking to sell a share in their property. However unlike other fractional property providers we are choosing not to allow people to give exposure to a specific property and rather bundling all the fractions together into a diversified pool.
There are several reasons for it, diversification is one of them but the bigger one is liquidity.
In order to make this platform successful we need wide acceptance. There will be no shortage of people looking to sell equity in their properties, but the shortage will be likely those looking to buy the fractions. While having the ability to buy property with small amounts is good, we have also opted for a cleverly engineered structure that gives investors leveraged returns without getting exposed to the debt.
But beyond that investors will be attracted to it if we can achieve liquidity for these fractions. A number of fractional property platforms are trying to build a secondary market. But when you give investors the ability to choose a specific property, you end up fragmenting the market.
If you have 5 properties each having 10 investors, then you effectively have 5 markets each with 10 investors. A secondary market is only as good as the number of active investors participating in it, why not have one market with 50 investors instead?
Property markets are notoriously inefficient. Location, Dwelling style, layouts, and emotional decisions on part of the buyers make a big difference in property prices. One property is not replaceable with other which makes a legitimate comparison impossible. On the other hand fungible commodities like gold are much different. A bar of gold of a certain size and purity is worth exactly the same as another similar bar. That makes gold a much better medium of exchange as it is standardized.
Our goal is to build a currency that is backed by real estate. One of the big reasons why money exists is barter is a terrible idea. Money was born because someone thought swapping 1 chicken for a pair of shoes and 2 goats for 5 bags of rice was too cumbersome and the exchange rates were too many. Instead we adopted a common unit and all things got denominated in that base unit. Exchanging things became much more easier as everything was worth something in those units and instead of carrying 2 goats for 5 bags of rice we just needed to carry enough money that the bags of rice are asking for.
A standardized unit of exchange makes markets efficient. Ripple is based on the same philosophy. Ripple network can achieve what it wants without having the Ripple coin existing, but then you would have too many exchange rates (which is the reality of markets today). But by having a baseline unit, the number of exchange rates suddenly drops down and things become easier to manage.
Standard oil became the behemoth because it introduced uniformity. If we can make property fungible, or more accurately property fractions fungible then suddenly there will be a much larger market and in turn much more liquidity.
And more participants means the chances of crowdfunding your home deposits or releasing equity suddenly become much higher.