Investment banking giant Citigroup has released a paper on how real estate technology is affecting the housing market, pointing to virtual real estate in crypto-backed mortgages and metaverses.
In a report released Wednesday titled “The House of the Future: PropTech – Towards a Friction-Free Housing Market?” Citi said cryptocurrency, blockchain, and property in the metaverse have “the potential to transform the traditional real estate market.” While crypto-backed mortgages can simplify the home buying process, many individuals have seen investments in metaverse real estate grow in the past couple of years.
Citi stated that mortgages tied to crypto assets could allow investors to “use their investment gains” without incurring capital gains taxes, but commented on the potential for risk in a volatile market. While many standard securities-linked loans have regulatory measures in place to assess a borrower’s ability to repay, crypto holders may have to pay more if the price of their tokens falls during a bear market.
“If the value of the cryptocurrency drops, the borrower may be exposed to margin calls, and eventually the cryptocurrency may be liquidated if the value of the collateral drops below a certain limit, such as 35% of the property value,” the report said. “It can be argued that introducing exposure to cryptocurrencies into the credit profile increases the overall risk of the loan.”
In addition to purchasing physical property, the Citi report commented on the potential benefits of owning and monetizing “digital real estate” in the metaverse. Specifically, the researchers detailed how owners of virtual property in Sandbox (SAND) — called LAND — individuals and companies — treated the metaverse as an investment similar to real-world property, with prices rising from around $100 per land in January 2021 to as much as $200,000. after a year:
“Due to the emerging nature of the virtual real estate environment, many real estate land buyers lack concrete plans to grow real estate and are simply anticipating the future growth of the platform and therefore higher land prices.”
Related: Propy Partners With Abra To Offer Crypto-Backed Home Loans
The banking giant is not the first to take into account the risks of crypto-backed mortgages. Ahead of the recent bear market, Florida-based ratings firm Weiss Ratings warned investors that a Bitcoin (BTC) price drop as well as stock performance, higher interest rates, and Federal Reserve policy changes could make crypto mortgages a possibility. Losing bet.