Real estate execs dismiss bitcoin frenzy
West Michigan leaders express concern over longevity, volatility of cryptocurrencies.
A recent collaboration between a global property marketplace and the city of South Burlington, Vermont, could be the first in a growing trend of real estate transactions being recorded on the blockchain, but don’t expect the trend to hit the West Michigan market anytime soon.
Local professionals raised plenty of questions about the validity of cryptocurrency in the real estate market.
A blockchain is a digital ledger that keeps track of transactions made in bitcoin or other cryptocurrencies.
Propy, a blockchain startup headquartered in Palo Alto, California, announced early in January a successful pilot project with South Burlington to record real estate transactions on the blockchain.
The Vermont state and local governments agreed to pilot the project. Michael Schirling, secretary of the Vermont Agency of Commerce and Community Development, said the project was “emblematic” of the state’s drive for new and innovative technology in business.
“We are fortunate to have a cutting-edge statutory framework that enables the use of blockchain technology, and we will continue to work with the legislature to ensure Vermont remains at the forefront of these innovations,” he said.
But a future where properties are bought and sold with cryptocurrencies still may be far off, based on reactions in West Michigan. Jeff Hainer, senior research analyst for Colliers International West Michigan, said the commercial real estate industry, as a whole, is “notoriously” slow to adopt new technology and shift business practices.
“Much of the industry still operates the way it did 40 years ago,” he said.
Vermont officials are eager to change that timeline.
“The city of South Burlington is always interested in taking advantage of technology that enhances its delivery of services to residents,” said Donna Kinville, South Burlington city clerk.
The project included South Burlington-based legal team Gravel & Shea PC to assess the legal hurdles of using blockchain technology for commercial development.
Natalia Karayaneva, CEO of Propy, said blockchain can help eradicate corruption and heighten security while also reducing transaction time.
“In parallel to making land record management systems significantly more efficient, Propy’s additional safeguards ensure additional data integrity," she said.
Colliers’ Hainer agreed there are reasons blockchain could become more commonplace in West Michigan. He said the local real estate market is as competitive as it has ever been, and players are looking for anything that could give them even a slight advantage.
A more common example is Client Relationship Management software, in which companies use data analysis to manage current and potential interaction with clients.
Hainer said he did not see blockchain technology being prevalent in the near future, but as more players “test the waters,” it could become an industry disruptor later on. Because of the process of transferring titles and funds through intermediaries, real estate transactions and investments take time to finalize. By contrast, securities and commodities can be transacted almost instantly.
“Real estate has long been seen as one of the most stable and consistent investments one can make, but it is cumbersome,” he said. “As the world becomes more interconnected, and as investors’ opportunities become limited, anything that can make a transaction quick and efficient while still being transparent is valuable.”
Scott Nurski, multifamily investment advisor for NAI Wisinski West Michigan, said the long-term success of this project would depend on the longevity of cryptocurrency itself.
“I’m not sure whether a title company will (or is able to) handle this type of currency directly,” he said. “At the very least, a direct bitcoin transaction would require a seller who is willing to accept this form of payment.”
Nurski said his speculations were based on the nature of the real estate market and not the nature of cryptocurrencies like bitcoin.
He further explained profits from other industries always have fueled the demand for both user and investment real estate, but what could change under a blockchain system is new, possibly international, sources driving demand — and naturally, rates — even higher.
“There is already more capital chasing quality real estate holdings than there are properties available to invest in the U.S.,” Nurski said. “If bitcoin brings new money, pricing will remain at historic highs, even if rising interest rates create a counter current in valuations.”
Another concern he raised was the trading volatility of the currency markets in international deals. If a seller were to accept cryptocurrency as payment, the price would have to be anchored to a sovereign currency, like the U.S. dollar.
“Otherwise, a seller could get to the closing table and find that the agreed-upon sale price does not meet the seller’s expectations when the cryptocurrency gets converted to a ‘standard’ currency,” Nurski said.
That volatility also could affect domestic transactions depending on how quickly the conversion rate of the cryptocurrency used could change. Nurski said, based on his experience, most sellers won’t accept the risk of losing money on the property, which means the buyer would have to either accept the risk or take the buying funds out of the cryptocurrency at the beginning of the deal.
“If I run a conversion check when the property is first put under contract, but the conversion rate is different at the time of closing (say 60 days later), I may end up receiving a different amount of proceeds in U.S. dollars,” he said. “Unless the deal somehow guaranteed a certain amount of hard currency, a seller could end up with less than expected.”