The Housing Shortage is the Next Target for Blockchain Development

I have a story for you.

A story, which some of you may find you care strongly about its themes.

Once upon a time in a land (not) far away there lived …

Sally, who put in a £100,000 bid for a house valued at £100,000. This was the only house within her budget near her workplace. The house was about to be sold, but a real estate investment company came along with a £110,000 bid, and obtained the house instead. The real estate company then put the house back on the market, available for rent.

Sally was then forced to rent, paying the real estate investment company in perpetuity. With a house rent of 1% of its market price per month (£1,000). Sally would pay a total rent that is more than the full price of the house in less than ten years, but would have no home, and would owe rent the next month.

The real estate company had no need for the house. It serves as a revenue source, or asset for the company, while the house would have served as a utility for Sally. In this scenario the real estate investment company serves no value, and only causes a housing problem.

An alternate scenario is one in which a house is available for £100,000. James has £8,000 per year after necessities (taxes, food, transportation etc). James has £10,000 in savings. In this scenario, James cannot afford to purchase a house. If the real estate company were to purchase the house, and make the rent £300 a month, James would be able to afford the £3,600 yearly rent.

In a standard capitalist economy, if the house could be rented for £1,000 per month, the landlord is unlikely to rent it out for £300 a month. Regardless of how much the house costs the landlord.

Housing

The UK housing market is used as an example throughout this section because that is where the organization in focus, Bricktrade, is based.

Food, clothing, shelter. Three things are widely considered basic human needs. Of these three, housing in a lot of locations faces the most pressure as it is used as a finite resource. Coupled with the frequently developed emotional attachment to houses, and the long-term stability it promises, it has rapidly become highly desirable. Supply is below demand. Due to the capitalist system of economics practiced in most countries, leads to high housing prices. The median house price in the UK stood at £250,387 in April 2021, while the median salary in the UK for April 2021 stood at £26,208.

This is a problem. With taxes, childcare, transportation and food still coming out of a salary, the amount left over for housing is much less than the cost of a house, especially with the house prices rising faster than salary increases for most individuals. The average house price in England for April 2011 was £168,218 while the median UK salary for April 2011 was £20,800. Compared with the figures in the paragraph above, for a ten-year period, the house price increased by approximately 48.8% while the salary increase was 26%. With average rents at about £968 for Q2 2021, renting is not an attractive solution for many.

Existing Solutions

Many have recognized this problem. The UK government’s responses, such as Help-To-Buy and Shared Ownership Homes have mostly involved temporary financing solutions, essentially loans, in differing forms. However, this does not change the cost of housing, and loans must be paid back, normally with interest. Encouraging housing developers to make a certain percentage of newly built homes affordable has not solved the problem, as the definition of ‘affordable’ is ambiguous and enforcement is weak. The sentiment is most developers would like to charge as high a price as they can and still be able to sell the housing units quickly.

Some in the private sector have sought to approach this problem from a point of increasing the supply of housing and hoping the supply and demand economics brings the cost of housing down. The traditional route of building developers raising capital via banks and wealthy investors is being augmented by companies aggregating small amounts of money from a large number of people.

It is at this avenue that a new company has risen to propose a solution.

Bricktrade

Bricktrade is a UK-registered company looking to operate within the intersection of the blockchain and housing industries. The company's stated aims are to solve the housing industries' problems by tokenizing real estate. Let’s take a look at the project.

In a nutshell, the company aims to aggregate funds from individuals and provide this to real estate developers to build houses. Ownership of those houses would then be split and distributed to the users, according to the amount each user put into the project.

It is important to note that unlike cryptocurrencies such as Bitcoin and Ethereum which do not have central ownership, Bricktrade is a company.  Bricktrade is set up as a limited liability company with 100% share ownership by the founder Mr. Gurvinder Kang. This essentially means that the real estate tokenization is a service provided to you by a company, Bricktrade. This is an example of an attempt to utilize the blockchain outside the cryptocurrency space.

The company seems to have plans for two blockchain products.

The first is the $BRKT token. Using information from the Bricktrade AMA article (link) and the Bricktrade’s Deep Dive into the BRKT token article (link). Bricktrade claims the following benefits:

• Token holders get free access to our investment products
• Token holders earn higher interest
• Staking BRKT on platform
• Earn interest in USDT and stake for interest on your interest
• Priority to invest
• Voting and governance
• LP staking
• Property investors must first buy BRKT before investing — which drives token price in the long term — the more we grow the more your investment grows
• Accessibility
• Flexibility
• Liquidity
• Reduced Costs
• Reduced Risks
• Security
• Diversification
• Staking
• Exclusive Offers

Reading through the list of benefits as well as other information from Bricktrade highlights a few problems. First of all

• Bricktrade’s statement that 'token holders get free access to investment products' along with their other statement 'Property investors must first buy BRKT before investing' contradicts their statements about offering investment products without admin fees ().
• Their statement 'token holders earn higher interest' seems confusing in light of the other statement that requires (prospective)property holders to buy tokens before they are allowed to invest. If all property investors on Bricktrade's platform are token holders then there are no non-token holders to earn higher interest than. This is the same problem with the phrases 'Priority to invest', 'Exclusive Offers' , 'Reduced Risks' and 'Reduced Costs'. There are no comparisons.
• The statements 'Earn interest in USDT and stake for interest on your interest', 'Staking BRKT on platform', 'Accessibility', 'Flexibility', 'Liquidity', 'Security' are not explained anywhere. This makes them ambiguous and open to different interpretations.

Here we arrive at the crux of the issue with the Bricktrade $BRKT token. The token is partially unnecessary. It seems to serve as an easily tradable financial security instrument, which Bricktrade issues as a way of raising money, but without any legal attachment to the Bricktrade company. It am not certain how current UK regulations view this. Regardless of the amount of $BRKT tokens purchased, the token holders have no shares in the company. The value of the token would simply be based on the $BRKT token market forces. Bricktrade's requirements that tokens be purchased to utilize their platform can then be seen as a way to create a reason to use the token, and as such create demand for it. It is not necessary, from a technical point of view, for the $BRKT token to be purchased to invest in properties. Instead it's a forced requirement.

There is no information on how many tokens would be required for any particular action. However Bricktrade states there would be a Gold/Silver/Platinum tier for token holders. This further adds a risk of unnecessary complexity. The primary aim of those who try to purchase shares in a building is to purchase shares in a building. Compulsory and tiered tokens are restrictions.

Similarly the cost of cryptocurrencies normally varies a lot, this means the cost to access investments could vary as well.

The second blockchain product is the tokenized real estate investments. These are the tokens that would represent ownership of a real estate property. So far no information has been given on how the real estate would be tokenized. The current demo of the Bricktrade marketplace platform does not include tokenized blockchain elements.

While the cryptocurrency space has attracted a lot of people who are strong supporters of decentralization, and also having control being vested in individuals rather than governments or companies, present society is currently set up in the opposite direction in a lot of cases. This has led to scenarios where cryptocurrency exchanges have been forced to obtain KYC and AML information from customers (Bricktrade has mentioned their intention in complying with AML/KYC regulations).

As a result we are currently in a hybrid state centralization.

Even if there is a method to trade Bricktrade's real estate tokens outside of the Bricktrade platform, the tokens for each piece of real estate would still need to be initially created by Bricktrade. As such Bricktrade would not be a fully decentralized platform.

Progress

The company seems to have impressive progress for such an early stage project. It has announced investments from Launchpool Labs and Alphabit. Two blockchain focused funding organizations It has also signed a partnership with Crowd for Angels, an online crowdfunding platform.

Other Issues

If you were looking for the best thing since sliced bread, Bricktrade is not it. There are a couple of issues in addition to points above:

Conflict Points

• In their article 'Bricktrade The Basics' (source) Bricktrade stated:

  "Bricktrade has been around since 2017, and was created out of a desire to satisfy a dual coincidence of wants: property developers want liquidity to build new projects, and savers want access to high interest opportunities for their deposits that banks are not able to supply."

  However Bricktrade titles another article: “Three ways Bricktrade will end the wealth gap” (link), and talks about ending the inequality between the rich and the poor. If the focus of the investment is on ensuring high interest rates for property investors, that conflicts with making the homes affordable for poorer people who cannot afford homes today.

• In another article Bricktrade states

  
  

  “Once a project has been completed, Bricktrade works with a partner company — Waterfront Estates — to handle the sales process. By this point, Bricktrade investors have already been paid back their principal plus interest payments over the life of the project.”

  Probably a slight error, the name of the company listed in the Medium article to handle building sales is called Waterfront Estates, however the company owned by the Bricktrade founder is called Waterfront Limited. Those are two separate UK companies owned by separate people.

  
  

  It is worth noting that both companies, Bricktrade and Waterfront, are owned by the Bricktrade founder Mr. Kang. While Mr. Kang fully owns Bricktrade (source - pdf) he owns 50% of Waterfront Limited with his wife owning the other 50% (source - pdf and source 2).

  While this may mean decreased fees moving between development and sales, it also could be the opposite. It is not clear whether Waterfront Limited handling sales is a requirement or an offer to developers.

• Bricktrade later on state that the possibility of using Bricktrade to acquire second homes. The primary problem isn't just a lack of homes, instead it's a lack of affordable homes. If Bricktrade is aiming to enable multiple home ownership, this could further increase demand against supply and cause an increase in house prices, conflicting earlier stated goals of solving the problem of a lack of affordable housing.

Alternative Projects

This is not an endorsement for any of the projects below.

Lofty.ai

Lofty.ai is a blockchain real estate tokenization platform. It launched its real estate marketplace August 25 2021. This means by the time of the posting of Bricktrade’s Launchpool AMA (link) on November 19 2021, Lofty.ai was already in operation. While the claim to be the first of their kind for blockchain tokenized real estate platform.

Others include:

Max Crowdfund
Estate Guru

While competition is welcome, these existing alternatives, makes Bricktrade less of a groundbreaking idea. It’s execution, it seems, would be the only thing capable of setting it apart.

Competitiveness of the Bricktrade Project

Bricktrade promises interest rates of up to 10% per annum, meaning the developers would have to be charged higher than that.
Compared to interest rates of 4-10% (source) here, for example, which are conventional property developer financiers, Bricktrade may not be an attractive option if the developer is not desperate. Especially in light of the crowdfunding options above. While Bricktrade could be the first real estate crowdfunding platform in the UK, they are not the first that serve the UK market.

Questionable Statements

It is common when advertising a business or project to focus primarily on best case scenarios. However common is not always correct, in the same vein, common is not always wrong.

On a page of the company website (link), Bricktrade claims to have over:

• 300+ Technical Contributors

• 10+ Teams of Partners

• 200,000 Property Agents Nationally

• 90+ Land Agents

  
  

Later on, on the same page, they claim to have:

• 90+ Core Team Members

• 10+ Teams of Partners

• 200,000+ Community Contributors

• 300+ Technical Contributors

  
  

As you may notice from the two lists above, there seems to be a repeat of the numbers with the name changed. Along with this, some of the numbers seem improbable for a project of this size.

Some of the information given appears unverifiable, for example they stated they are joining a 2022 Techstars Accelerator program (source) but no information to that effect can be found. The Web3 Accelerator by Launchpool and Techstars has a page that shows the companies that qualified for the program(link). Bricktrade is not present.

On 18 February 2022 during an online question and answer session the Bricktrade founder stated "We are not a Defi platform that can rug pull its audience" (source). However on 26 May 2022 during another online question and answer session, the founder stated "this rug-pull scenario is new to me" (source). It is normal to expect someone raising funds via the blockchain and cryptocurrency to have heard of the term or the action of a rug-pull. It is worrying to say the term is new a few months after using it. The fact that the company is registered in the UK by a founder who has over a decade of involvement in real estate makes it easy to calm fears about the project creators absconding. However that does mean the project cannot collapse.

FCA Protection

In the UK, the FCA (Financial Conduct Authority) regulates firms that operate parts or all of their business in the financial sector. Because Bricktrade takes investments, they me be required to follow some FCA regulations.

Bricktrade announced a partnership with Crowd for Angels, an FCA regulated crowdfunding company. Crowd for Angels runs a platform that lets other companies raise funds via taking on debt or giving up equity.

However, that does not make Bricktrade FCA regulated to offer investment opportunities. Which means, its own future platform for real estate tokenization and investment is not FCA regulated. It is unclear what the Crowd for Angels partnership entails as Bricktrade did not raise funds on their website, instead using Launchpool.

Final Thoughts and Conclusion

The housing industry needs change, but it is unlikely that Bricktrade is it. Their goals and plans are sometimes contradictory and ambiguous. They are also behind schedule. Although this is not unusual for a lot of businesses, especially new ones, it is one of many worrying signs about Bricktrade.

Their planning does not seem cohesive and their focus seems off the mark. For example they haven't launched their marketplace, but state they have spent over £150,000 of private funds (source) and raised $400,000 (source1, source2) in seed funding, and they are currently looking to raise more funding. However looking at the companies accounts made up to February 2021(source) such results of  expenditure or assets cannot be seen.

All this while the beta platform shows no blockchain features. They have images of links to mobile apps at the bottom of their website, but those apps do not currently exist on the app stores and there are no links.

A solution to housing problems would be a thing of beauty, but Bricktrade makes itself hard to recommend. Bricktrade may be worth watching but just as they suggest not giving a real estate developer full funds raised at the beginning of construction, but instead at milestones, I would not suggest putting any more money (beyond the over $400,000 raised) into Bricktrade until they can display a working decentralized real estate tokenization platform.

Links to the Bricktrade Project

Want to find out more about Bricktrade? Checkout their webpages below.

Bricktrade's Medium Profile

Bricktrade's Website

Bricktrade's Twitter Profile

$BRKT Token Etherscan Page

If you have any questions, or objections, please feel free to use the comments section below and I’ll be happy to reply!

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