Citi calls out potential risks of crypto-backed mortgages and benefits of metaverse property
Investment banking giant Citigroup has released research on how property technology could affect the housing market, mentioning virtual estate in the metaverse and cryptocurrency-backed mortgages.
In a report released Wednesday titled, “Home of the Future: PropTech — Towards a Frictionless Housing Market?” Citi said crypto, blockchain and property in the metaverse had the “potential to transform the traditional real estate market.” While crypto-backed mortgages could streamline the process of purchasing a home, many individuals have seen investments in metaverse property grow in the last two years.
Citi reported that property loans linked to crypto assets could allow investors to “utilize their investment gains” without incurring capital gains taxes, but commented on the potential for risk in a volatile market. While many standard loans linked to fiat have regulatory procedures in place to assess the ability of a borrower to repay, crypto holders could be forced to pay significantly more should the price of tokens fall during a bear market.
“If the value of the cryptocurrency declines, the borrower may be subject to margin calls and ultimately the cryptocurrency may be liquidated if the collateral value falls below a certain threshold, such as 35% of the property value,” said the report. “Introducing cryptocurrency exposure into the credit profile arguably 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, researchers detailed how individual and corporate owners of the virtual property in The Sandbox (SAND) — called LAND — have treated the metaverse as an
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