Since 2006 I’ve been an economic adviser to real estate companies involved in the acquisition of mortgage portfolios. I’ve been confronted and amazed with the complexity of property rights and liquidation ranks where (dubious) timesharing legal title and rights ownership have, now and then, priority over other preferential creditors in insolvency procedures.
Timeshare Fraud in Europe: the EC Directive
During the 90s’ more than 60.000 people may have been scammed in Europe with the selling of price inflated or overbooked vacation weeks. Fraud in timesharing may have still affected 20.000 owners in 2009. In the same year, a new EC Timeshare Directive on the protection of consumers in respect of certain aspects of timeshare long-term holiday product, resale and exchange contracts was put in place to implement clearer and simpler rules.
Timesharing with Blockchains and Smart Contracts
If you’ve been up to the news lately in planet Earth, you may have heard about it. Blockchains may bring an end to centralized exchanges, databases and recording systems. With timesharing it is no different. Imagine a world where every transaction is disintermediated and economic rules of the game are programmed. Now enter a new level, the Internet-of-things-in-a-blockchain: Home/Apartment keys, Hotel room keys, Vacation home, Timeshare keys, Car keys, Leased car keys, Rental car keys, Locker keys, Safety deposit box keys.
Why crowdfunding for timeshares now
According to my own research, 650M USD have been invested in seed and venture capital real estate crowdfunding platforms. You can download the list to see rounds in detail. Real estate crowdfunding continues to be a dynamic and ever-evolving industry, estimated in $3.5 billion in 2016.
In France, they are buying castles in the sky with diamonds. Nope. The story is about 7000 users who bought a ‘once stunning’ castle in the region of Poitou-Charentes. Pardon my french but I guess you’ll see timesharing sale revived with reward crowdfunding. Enter the blockchain and you may have it on steroids, concluded from the fact that according to some folks, blockchains are for drug dealing. The wisdom of Adam Smith free markets has no concern for the detractors of the upcoming, promised blockchain revolution.
Timeshares, fractional ownership and smart contracts
“The timeshare industry will continue to decline in the coming years, and I expect it to be replaced by a more varied travel industry. This varied industry will include alternative accommodation options like Vacasa or Airbnb, but also a rise in fractional ownership or crowd sourced funding with a twist (real estate crowdfunding) that allows people to use a pool of vacation homes that they are investing in for a discount. This would flip the switch on timeshares, making shared ownership a real investment as opposed to a financial drain. (…) I see a lot of opportunity for timeshare companies to “make things right” and repurpose existing timeshare inventory as vacation rentals that have sole or fractional ownership, or as a crowd funded investment pool.”
In the new age of blockchains, startups are popping up claiming they can put this and that on the blockchain. How silly! This is not decentralized ownership just because the represented assets may have to be put in escrow and in the worst case you may not even claim it, luckily only in crypto-cash settlement. Can’t fake it until you make it: you are just copying the current exchange model with blockchains over-the-top. It is the other way round. Property is not something you can simply claimdelivery at payment (sync) just because you have the keys to access some token. Remember, blockchains are asynchronous databases.
But, say you have your public key stored in the blockchain and in your e-wallet and intend to open some kind of super safe vault or maybe just an apartment, and that some one granted you a temporary token to access it, maybe after you assign some security deposit and/or payment confirmed with your private key. Then, you would just tap your cell phone close to the door lock of the apartment to unlock the mighty door… now, we could start another conversation.
Due to scalability problems, micropayments and microinsurance are not a subject or possibility for bitcoin or blockchain anymore. However micropayments and low fees are already a possibility with off-chain or side chain mechanisms like the raiden network. And for now, the job would be starting to prototype a couple of smart contracts for a fully flexible fractional timesharing title ownership and connecting it in a marketplace with investors, tourists and a bunch of luxury resorts.
The new sharing economy: smartlocks, Dapps, wallets and smartplugs
Since its inception in November 2015, Slock.it’s mission has been to developUniversal Sharing Network, or “USN”. Build on top of the public Ethereum Blockchain, the USN will provide users a set of mobile and desktop applications to find, locate, rent and control any object mediated by smart contracts, from anywhere in the world.
I was a mere youtube spectator, lucky to get in touch with Slock.it at the Ethereum Devcon 1 (fantastic week) conference in 2015. Ether was barely traded in exchanges. Slock.it genius invention is, to my knowledge, the first proof-of-concept regarding IoT in a blockchain, in the sense that all the data and program instructions are stored in a decentralized blockchain system, barely nothing is off chain, except, the hardware and firmware. Since then, the game changed and a tidal of new implementations have surged. My interest is not regarding if your washing machine can have its own wallet and ask for supplies online, but if we really can automate payments and economic revenues in things like apartments. And yes, it would be interesting that the Dapp could call the cleaning services too.
Decentralized marketplaces for small and medium resorts
Decentralized markets for timeshared resources is nothing new or original. The most prevalent topic of implementation is internet bandwithand computing power. You can find other proven models and implementations, some launched their own ICOs, just around the corner. A word of caution: fraud cannot be stoped. Creativity is the mother of all thieves, monopolies and misinformers. The next step in our little model is controlling the revenue stream with some level of fairness. We must assume that these models can be also used in the permissioned blockchain perspective for efficiency and profit of big players, even if their systems are optimized already, the may want to canibalize themselves just to prevent competition from the cooperative and the permissionless players, at the expense of consumer surplus, the local economy and jobs, if there still be left any with those nasty robots 🙂
Self-enforceable revenue management and revenue sharing in the blockchain
Smart contracts eliminate the need for trust between parties to the extent that they are self-enforceable. In fact, the code and the contract have been merged into one, given that the contract is both defined and enforced in the same way – by the code.
Rules are for fools, a.k.a. call me when you catch the DAO hacker (more details here), however, stability with smart contract rules and governance might be what will provide alternative, voluntary, non-coercive, auto-regulated standards for marketplace players to adopt their own best coopetitionstrategies. Supporting and coordinating the small and medium business should be the mission and this is where the designers and architects of revenue sharing and revenue management come in to place. And it would be great some devs join the party too!
Introducing Mutuall Collaborative Finance
Mutuall aims to be a complete web solution for saving, investing and revenue sharing for real estate and hospitality.
First stage: Mutuall will connect savers and borrowers in a decentralized crowdfunding platform. All contributions for project development are planned and automatically executed with escrow smart contracts. All users accounts are managed with wallets created in the ethereum blockchain. Savers can contribute with up to 1 EUR for each project. Mutuall will be a licensed crowdfunding platform under supervision of the portuguese CMVM securities exchange commission. Mutuall does not provide advice to investors and savers and does not take part in operations as investor or developer.
Second stage: Mutuall will register the property ownership and mortgages to the micro-level of the contribution of each crowdfunding participant. Our plan is to connect our blockchain registry with official notaries and registries in the pilot. Loan-to-Value(LTV) : properties from approved projects are independently valued by a certified appraisal. All crowdfunding campaigns, are subjected to a limit of 80% of LTV.
Third Stage: Mutuall smart contract technology will manage revenues from properties and distribute revenue between administrative expenses (predefined facility services), property insurance, interest and profit for each project associated with a property. In the extreme cases of delinquent debt, Mutuall smart contracts should automate, under certain agreed terms, the execution of the mortgage in favour of lenders and other preferential creditors, under the liquidation ranking and creditors graduation.
www.mutuall.pt (coming soon)
Mutuall.pt is owned by IMOXTEC, SA. This article does not represent any final position or advice from Imoxtec, SA