A delightful deep dive saga of betting on cities with tokens
Location doxxing alert! I live in Mumbai. But then there are 21M others who live in this bustling Indian city. A few days ago, while driving back home, I had this weird epiphany. In my defence, it takes me roughly 1.5 hours to reach home and I need to figure out ways to keep me entertained. So, I thought that my mindset about money has changed quite a bit after moving to Mumbai. What felt like an insane amount of money somehow feels normal. And I attribute a lot of this to real estate.
So real estate does seem like a rich man’s game, right? But most of us are not there yet, probably. So a 30,000 feet view of the problem at hand looks something like this:
1. Ticket size: If retail investors were to invest in real estate, there has to be a way to bring down the initial investment required to ape into it.
2. Baggage of Ownership: A lot of us want to be a part of the potential upside of real estate. Unless we solve for the commitment issues of holding/maintaining an actual property AND enabling the users to buy wherever they want, real estate is going to contribute a lot more to the income disparity.
3. Bureaucracy: If you have ever purchased a house, you would know how piles of documents are put in a frustrating cocktail that involves banks, registrar, seller and witnesses. In simple terms, the entire process sucks out the energy from you.
Therefore, a quick segue into the topic of the day. Parcl. Tied to real world property values, Parcl is a trading platfrom that allows users to invest in and trade the price movements of real estate.
Buckle up, in this article we are going take it from the top and cover:
1. Options to invest in Real Estate in India
2. What is Parcl?
3. How does Parcl Work?
4. Key Problems Solved by Parcl
5. Parcl Vs Fractional Ownership Vs REITs
6. Competitive Lanscape and Summary
Other Ways Get Real Estate Exposure in India?
If you are an active investor (or even fiddled with your options in the past), you must have had access to direct equity, mutual funds, bonds (Fixed deposits, PPF, NPS etc.), cryptocurrencies etc.
And I am sure while you were at it, the idea of investing in real estate must have crossed your mind. At this juncture, most people counterintuitively lean towards buying a house.
Are there any other ways to invest in real estate? Let us explore:
REITs in India, or Real Estate Investment Trusts, are investment vehicles that allow individuals to invest in commercial real estate properties without directly owning them. These trusts pool money from multiple investors to build a portfolio of income-generating properties like office buildings, malls, and hotels. The rental income generated from these properties is distributed to investors as dividends. REITs are listed on stock exchanges, providing liquidity and flexibility for investors to buy and sell REIT units. They are regulated by SEBI and offer tax benefits, but it’s important to assess the risks and seek professional advice before investing.
One such REIT is Embassy office parks. If we evaluate its performance, the share price has give a return of -9% in the past two year period.
Similarly, the yield (Dividends) have stayed in the 5% range.
This brings me to evaluating pros and cons of REIT investing.
While this could be a good way of getting exposure to real estate, essentially, you are betting on the ability of a property manager to take the right decisions.
2. Realty Index and Underlying Stocks:
A second way to earn exposure to real estate would be to bet on stocks that have a business in real estate. For example, Hiranandani, Rustomjee etc. Alternatively, you could buy the index via ETF of these stocks. Going a step further, you also have some mutual funds that take exposure in these stocks.
In either case, you are still betting on the business of real estate and not real estate directly. Of course the general market trend would impact these stocks but a lot of other factors would also play an important role. Here are a few examples:
Market Dependency and Risk Exposure:
Real estate mutual funds and development companies are heavily dependent on the performance of the real estate market. Economic conditions, changes in interest rates, and market trends can significantly impact the value and returns of these investments. A downturn in the real estate market can lead to decreased property values, reduced rental income, and potentially lower returns on your investment.
Lack of Control and Transparency:
When investing in real estate through mutual funds or development companies, you have limited control over the decision-making and operations. Fund managers or development companies make decisions regarding property selection, acquisition, and management on your behalf. This lack of control can leave you relying on the expertise and judgment of others, which may not always align with your investment preferences or risk appetite. Additionally, the transparency of operations and financial reporting can vary, making it harder to assess the true value and performance of your investment.
Fees and Expenses:
Real estate mutual funds and development companies often come with various fees and expenses, including management fees, administrative costs, and performance-related fees. These fees can erode a significant portion of your investment returns over time. It’s crucial to carefully evaluate the fee structure of any real estate investment option and consider whether the potential returns justify the associated costs.
As it turns out, direct ownership of physical real estate is accessible to only top 0.1% of Indians. At the same time, options for retail folks come with their own set of problems.
So, is that the end of story? Nope. Since we are talking about the city of Bollywood, the hero has to emerge victorious before it all ends. This brings me to the scene where our protagonist enters the movie.
What is Parcl?
What if I’d say that while sitting in your house in Mumbai, you can invest in a luxury condo in Miami? Before you give yourself a reality check by peeping into your bank balance, what if I said that you can start with a measly $1?
Your relatives in that part of the world say that Austin is the new hub for tourism. Would your inquisitive ass be interested in buying real estate there?
Well, Parcl enables you to do just that minus all BS like securing a mortgage, making those payments, dealing with tenants and collecting the rent on time, managing the property or hiring a property manager, understanding tax implications, and the list goes on.
Unlike owning the actual house, the Parcl Protocol lets users buy and sell digital versions of real estate that track the actual price of real estate assets in specific locations.
Because all of this is digital, you are simply a click away from investing in real estate. Also, the underlying Blockchain technology ensures that you always retain proof-of-ownership with no intermediaries coming your way.
So when you buy a something on Parcl, you are essentially betting on a digital stake to piece of land who’s price depends on the underlying real physical land. As a result, you can sell this digital twin of that land piece to someone else on the market.
Think of them like physical receipts who’s price is dependent on the actual price of the property. Rather than buying and selling the property, you are trading in these receipts.
How does Parcl Work?
Imagine Parcl as a super smart computer that collects lots of information about how much it costs to buy a small piece of real estate, like one square foot, in different neighborhoods around the world. It uses this information to figure out an average price for each neighborhood. They are probably adding more neighbourhoods as I write this one.
Let’s say you want to buy a tiny piece of real estate in Miami. Parcl tells you that it costs around $609 for one square foot. Now, here comes the cool part: Parcl creates special digital tokens that represent the value of real estate in Miami. These tokens can be bought and sold just like trading cards or game tokens. And you know what’s even cooler? You can mix and match these tokens to build your own global real estate collection.
This whole thing just works seamlessly. Thanks to Blockchain technology. Due to its inherent properties it keeps track of these tokens and the transactions people make with them. It’s so secure that you don’t need to worry about having middlemen like real estate brokers.
Parcl and blockchain make it easy for people to trade these tokens and be part of the real estate market, all without the usual hassles and costs.
So, with Parcl and blockchain, you can buy and sell digital tokens that represent real estate in different places around the world, and you can do it all on your computer. It’s like having your own virtual real estate empire!
How do you buy and sell Parcls?
Yeah. I have been a degen myself. Guilty off skipping everything else and jumping to the parts of blog that talk about the real thing, I won’t keep you waiting.
In summary, Parcl is one of the easiest platforms to trade on real estate indices. All you have to do is follow the steps below to get started:
Head over to app.parcl.co and connect your wallet. Currently it does support of a bunch of wallets like Phantom, Backpack, Solflare and ledger. If you are unsure how can one create and connect a wallet, here’s a quick guide.
I would be using my phantom wallet to connect with Parcl. Since it is the most popular choice, I would stick to it for this post. Once you have connected your wallet, you would enter the ‘Explore’ dashboard that talks about different cities across US.
I would suggest that you have a look at ‘view all’ filter from the top to understand the overall investing vibe. There are a few data points worth mentioning here:
A. Open Interest: This is the total exposure to the pool (including leverage). Open interest is a measure of the flow of money into a market. Increasing open interest represents new or additional money coming into the market while decreasing open interest indicates money flowing out of the market.
B. Total Deposits: Also known as TVL in DeFi platforms, this is the total USDC in the pool accounting for trades (excluding leverage and LPs)
C. Market Sentiment: This is where shit hits the roof. Using Parcl, you could also short the properties that might go down in the future. Market sentiment indicates the percentage of pool that is into either shorting or longing the market.
D. Price: This section shows the price of the index based on median price in the city per square foot. This is updated every 24 hours and the timeframe chosen is 3 months.
Once you have figured out an option of your choice, hit on the trade button on the right. This is where you are presented with even more data and insights about the trade.
You can also see a break up of how real estate is built in the city into condos, single family homes and townhomes.
And finally, depending on your evaluation, you can pick weather to long/short an index. Simply put in the USDC you are willing to put in and Viola.
You can checkout your open positions from the ‘Portfolio’ tab on the top of the page.
4. Adding Liquidity:
Remember how I keep on blabbering that Blockchains democratize finance, here’s a quick example. In traditional finance, a centralized platform would enable trades in return of a fixed fee.
In Blockchain realm, this job can be taken over by people like you and me. Basically, a bunch of people come along and provide there USDC to maintain liquidity in the pool.
In return, these ‘liqudity providers (LP in short)’ get a share of fees paid by the user. This share depends on the % of liquidity added in the pool.
For becoming an LP, simply head over to ‘Provide Liquidity’ tab, find out the pool you are interested in (More trades == More fees), and simply add the desired USDC worth of liquidity.
Note that you will get corresponding tokens to the liquidity you have added. You can sell these tokens for USDC any time.
5. Advanced Trading
Once you connect your wallet, you would see a beautiful wallet icon on the top right. Tapping it will allow you to get into advance mode.
Think of this as an opportunity to go all supersaiyan on investing. While this does come with a greater risk, it allows users to take up to 10x leverage on their investments.
If used responsibly, this can turbo charge your returns.
What are the Key Problems Solved by Parcl?
Coming back to the problems we discussed above. Let us connect each one of them with the offerings of Parcl to find out if it makes sense:
1. Future Proof, Fast and Efficient:
Running on Solana Blockchain, Parcl is powered by a network that can process 50,000 transactions per second. Woah!
All of this while the fees per transaction is roughly $0.00025. Woot! Compare that with the broker fees.
The protocol is built using Web3 technology, and this means Parcl is able to provide an accessible way into real estate investing due to the use of synthetic assets, which are a form of derivative. Not only that, but Parcl can provide liquidity to a historically illiquid market thanks to the help from AMM liquidity pools.
tl;dr: It took us ages to find the right seller/buyer of a physical property, get into endless spree of documentation with the authorities before we could get into a real estate trade. Not anymore baby!
2. Data- Informed:
While investing in real estate in India, you generally rely on references and broker for making one of the most expensive decisions of your life. It is just bizarre. With Parcl, you have access to real-time property data, none of that bi-monthly data or quarterly data.
Of course you have technical information about REITs listed on the stock market but then again, they probably won’t represent the ‘home-owner’ market.
Similarly, you could fundamentally analyze the real estate development company stocks, but unfortunately, that is like analyzing the farmer’s PnL when all you want to do is buy mangoes.
Note: Parcl city indexes collecting 10+ million data points daily for precision pricing.
Even if I had a crore ($125K) with me today, I would have avoided purchasing a real estate because that money better be contributing to my F.I.R.E. number. And guess what, most of us anyway do not have access to funds like this. Therefore, we need something like Parcl that can enable us to build our real estate portfolio with as low as $1.
Moreover, even if we had the money and time to go through the hassle, how easy is it for an Indian national to purchase a piece of real estate in the US?
Parcl helps us gain exposure to markets like New York, Los Angeles, and Miami with a click of a button.
4. Broad Exposure:
Even HNIs would face this problem. Once you have invested in real estate(s), it is quite difficult to diversify as there is always an upper cap to the funds.
With Parcl you can diversify without the constraint of minimum investment. A few dollars in Chicago, a few bucks in Boston, a little bit of Denver and a lot of Phoenix. The possibilities are endless.
You can also get into pair trading to hedge your risks. “Long Miami, Short SF”
While I have ranted enough about how traditional real estate investing isn’t up to the mark in terms of process, there is something that we just take for granted. We believe that the intermediary, be it government or regulator, have done their job without any biases.
But as they say in crypto:
Don’t Trust, Verify!- Crypto Bros
And that is what Parcl stands for. Experience unparalleled transparency, efficiency, and security with on-chain transactions.
Parcl: The Best of All Worlds?
Now that we have talked about how Parcl works and some of its salient features, it is that time of the article where we throw shit at different real estate investing tools. Jokes apart, this is where I would summarize how Parcl enjoys a vantage position over its peers.
Please note that I am not even considering direct ownership of real estate as a competition in this race of trading.
Summing it Up:
While I focussed on Indian real estate investing landscape, the problems that are mentioned above could be extrapolated globally. The physical ownership of real estate remains out of budgets of most of the citizens, digital methods of REITs, Stocks aren’t much enticing either.
Similarly, if you consider fractional ownership of a property on Blockchain, these platforms are plagued with poor choice of properties, traditional real estate risks and longer investing horizon. Some of the competitors of Parcl include Propy, RealT, Brickblock. AFAIK, Parcl’s approach of bringing RWA on-chain with index investing is novel and much more relevant as compared to its peers.
Now imagine if someone were to take a bet on one of these parcls for a short term. Won’t they want to know the price action in real-time without opening their laptop? Well the answer is yes!
That is where Push protocol comes in.
Push Protocol is a decentralized communication protocol for Web3! Using which any dApps, smart contracts, backends or protocols can send comm (starting with on-chain / off-chain / gasless notifs) tied to user wallet in an open, gasless, multichain and platform-agnostic fashion. The open comm layer allows any crypto wallet/frontend to tap into the network and get the comm across.
This post is sponsored by Push Protocol.