Written by Antony Abell, CEO & Co-Founder of the TPX™ Property Exchanges, London.
Property, or real estate, is a fixed asset that is common to all of us. We all live and work in ‘properties’ and many of us have worked hard over many years to own them. We may move in and out of them but
properties themselves do not physically move. Almost without exception they are also permanently ‘fixed’ by bricks, steel, and mortar to wherever they were originally built.
What if all properties however could be made economically and financially ‘liquid’ and instantly convertible into real world fiat cash on your mobile phone?
Creating ‘liquid property’ would effectively make what most of us consider an ‘illiquid’ asset into a fully ‘liquid’ and instantly transferrable one. What if the value of properties and their title certificates could be easily and safely stored on mobile phones, on a payment card, and moved across the world at the speed of light? What if we then discovered that we were able to use liquid property for storing our wealth in the form of inflation resistant ‘slices’ of legal titles of properties… while it also remained instantly available to all of us as fiat money to buy goods and services that we wanted anywhere in the world?
Inflation… but not as we have known it
A classic definition used by economists for the cause of inflation is ‘too much money chasing too few goods’. By any such definition our governments (both pre and post covid stimulus payments), banks and trading systems have now created too much money and too much debt and therefore by equal measure have now created too much inflation. Too much inflation also reduces broad confidence in
the ability of our fiat currencies to hold value or retain their purchasing power. For these reasons, and some others related to the COVID-19 pandemic, Ukraine and disrupted supply chains, this has
resulted in the inflation of the price of goods, energy and services reaching levels never seen before. The CPI (Consumer Price Index) annual inflation rates to October 2022 of have hit 7.75% in the USA, 11% in the UK and a whopping 10million % in Venezuela. The CPI inflation rates in all countries are expected to sharply increase over the next 2-15 years and to increasingly match the much higher monetary inflation rates (increase in money supply) within each economy. Although not a part of the formula used for calculating CPI, property has also continued to increase at rates equal to or greater than inflation with sporadic adjustments. The advent of new financial technologies, systems and thinking currently taking place within the property and financial industries is forcing a change in how property is used within these industries and it is creating changes to both the access to the asset class and its affordability. The threshold for owning of property, who then owns it, how it is used, and most importantly who benefits from it, is now being globally disrupted. This is the genesis of ‘liquid property’.
Inflation-resistant money, going mortgage free and half price homes
As many have noted properties and homes that used to be commonly accessible and affordable are no longer so. Many families have to wait until their thirties to even hope to be able to buy a home and delay having families until they believe that they can afford one. Traditionally we would typically raise a deposit, agree a mortgage or debt for the property, purchase it and then have the use of it while
paying down the debt over time. What most did not know is that the asset-backed financial instruments that were created in this process would then be used by our banks and financial systems to create further digital money (using the fractional reserve lending systems) for their own benefit which would then be lent to others to then also buy their own properties. This would be done again and again as our financial systems and banks found that they could create such digital money seemingly from nothing, and lend it, while charging the recipient of the loans for the privilege. For fifty years this process has by and large worked reasonably well in its net effect as it created the excess capital needed to grow new businesses and technologies and growth, even while it decreased the purchasing value of fiat money we earned in the process. That is until now.
As a result of the money printing and expansion of the money supply over the last 52 years, coupled with the accelerated effect of monetary stimulus used in the pandemic, our banking systems have arguably now created too much global debt and too much digital money. This has resulted in levels of monetary and consumer inflation that have never been seen in living memory. It has also directly impacted and eroded the trust and value previously held in our fiat money or national currencies. This is not new. Copper as was previously used to debase gold. It has happened many times before over
the millennia and it will happen again. In 1965 an average home in the UK cost £3,542. In 2021, and it then cost £274,000. Inflation over this period was, according the Bank of England, average 4.8% p.a.
Bank of England inflation calculator
Owning a home in 1965 cost about 4.2 times average earnings, and in 2021 the cost was 9.2 times average earnings (or 12 times average earnings in London in 2022). In a high inflation cycle, property or asset inflation also tends to increase as those with wealth then seek inflation-resistant assets and increases the buyers of the limited property supply. This accelerates as the purchasing value of the fiat
money further declines with the increase of inflation. Therefore, the proportion of average earnings needed to buy a property has continued to accelerate and left property ownership a mere aspiration for many. High inflation is also forcing all of us to understand the difference between the real purchasing value of ‘money’ versus that of fiat ‘currency’. It is also forcing us to challenge our understanding of the way that money works for us individually and to ensure that the stored
value of our wealth (or our lifetime’s work in the form of pensions) may keep ahead of inflation and be able to maintain its future purchasing value. Maintenance of the preserved value of our wealth should also include not having to pay a premium to access it. As inflation increases and assets, such as property, increasingly show an ability to reserve their value against the ravages of inflation, there are now signs that Gresham’s monetary law of “bad money drives out good money” may now in fact be reversing in an asset-based economy where real world, inflation resistant, asset-based money (secure title of properties in a liquid, transparent, secure and transferrable form) will increasingly become the preferred unit of exchange as individuals increasingly choose for themselves which least depreciating form of money (unit of exchange) they will accept in their transactions, with each other or for their labour.
According to Savills, there is in excess of $326.5 trillion of property (real estate) in the world and the value of it exceeds all other forms of currently stored or liquid money in the world (both M1 and M2 money supply), then the oft repeated historical switch to an asset-based economy has already quietly begun to implement itself as a parallel economic system to the diminishing value and increasing systemic risk of our legacy fiat/debt economies. Evidence of this is that individuals and institutions are increasingly using alternative forms of units of exchange in the form of cryptocurrencies, stable coins and gold back debit cards as the speed, efficiencies and low costs of these undermine the legacy banking systems, processes and value propositions. Until the last 3 years, such an alternative global possibility was not previously seen as viable because the technologies, systems, regulations,
governance, trust structures and efficiencies necessary were previously not sufficient to allow for the trusted use of the digital representations of real-world assets to be used as money…
… the technologies, transparency, governance and trust systems are however now ready.
The recent rise of blockchain technologies, distributed ledger technologies, artificial intelligence (AI), regulatory systems and uni-swap (or automated market maker algorithmic trading systems) have
now allowed for the seemingly impossible process of turning real world illiquid property (real estate) into fully liquid and transferable money itself. As properties become fully liquid, assets accessible to
everyone (then our ownership of them) and the way that our financial and economic systems operate have started to irrevocably change. In an asset-based economy with ‘liquid property’, ownership of small units of the asset class are affordable for anyone, anywhere with a mobile ‘phone as the cost of owning a fraction of a legal property title drops to ‘pennies’ with near zero barriers to entry. This is often referred to as the ‘democratisation of the ownership of property’ and the breakout point for an asset-based economy.
Within the designs of ‘sharing economies’, ‘liquid property’ and ‘property as money’, the concept that one must use a mortgage product to ‘one day own 100% of a property’ is fading. Going ‘mortgage free’ no longer needs to be an aspiration as majority ownership of the title certificates denotes occupancy and control of a property and there is no longer a requirement to fund 100% of the property for these rights.
The breakthrough moment for most property owners is the revelation that the value of the ownership of the minority portion of a property (49% or less) has greater economic value to our financial and economic systems than it does to the majority of property owners. The revolution that is
happening in the property industry is that property owners are now seeking to ensure the greater value of property goes directly to the title certificate owners rather than their banks or mortgage providers who previously used them. As property owners realise the true value of their own assets (and/or of owning a single slice of property), in an open and competitive marketplace, then the true value of their properties can now, over time, be directly received by them by listing or accessing properties on global property exchanges.
Making property liquid removes the middlemen, costs and delays of traditional banking transactions and returns the value of properties in our economic and financial systems directly to its owners. The true benefit to our societies and our young is that this process enables the creation of ‘half price homes’ for those seeking occupancy, equitable equity release for those seeking to go ‘mortgage free’ to help fund retirements, equal access to inflation resistant assets for those seeking to preserve
their existing wealth and efficient direct access to capital for property developers.
The asset-based economy
Which would you rather be paid with for your labours? A depreciating fiat currency, a highly volatile extrinsic value crypto currency, or an inflation resistant unit of intrinsic value ‘liquid property’ that can
then be instantly converted into a fiat at the point of use?
In a high inflation economy, the choice is becoming painfully and increasingly obvious.
The global delivery of liquid property into an asset-based economy is a unique opportunity to broaden common ownership of the infrastructure of our societies and economies. It promises to combat inflation, re-invent the core principles of capitalism, drive the velocity of money (and tax
receipts) in our economies and it is expected to be funded largely by a net inflow of global capital that is seeking inflation resistant assets. In extending ownership of the essential assets of our economies to
markets beyond our local banks and financial systems, liquid property offers the very real prospect of rebalancing the unsustainable increase in global wealth disparity as well as reducing the destruction of
wealth, pensions and savings that inflation causes in our societies. As we all consider the recent UN Climate Change Conference (COP27)… ‘liquid property’ also offers up the very tantalising idea that we can now collectively afford to buy the Amazon rainforest and turn it into a global conservation zone! Could this ‘green-backed’ digital currency form a new world reserve currency to challenge the once mighty greenback - a.k.a. the US$?