The success of the cryptocurrency industry is a testimony to the technological marvels blockchain possesses. Added to that, the disruptive capabilities of this decentralized ledger platform are already revolutionising industries such as insurance and healthcare. But now, the innovations are bringing blockchain to one of the most ancient industries, real estate.
Human civilisation has bought and sold land since the days lands have been charted as personal properties. In my previous post, we discussed how tokenisation in real estate changes the way land dealings were executed in the past. Blockchain enthusiasts like me are excited to witness this union of blockchain and real estate. The primary question that arises is what does this union mean to us? One notion we all can agree is that incorporation of blockchain in the functioning of real estate is bound to disrupt the traditional methods. How that will occur is the centre of today’s discussion. Let us now dive deep in and see how blockchain can influence the real estate industry:
# Reduced Costs
A 2016 report by Fortune estimated the value of all the global properties at a staggering $217 trillion. The analysis included the value of all the residential, commercial, forestry and agricultural lands. This places the real estate industry as one of the most economically affluent sectors, and the figure substantiates the necessity of sheer high financial backing required by a potential buyer. Properties are, to most people, often the most expensive items they buy.
The cost of owning a land is not only limited to the payment of the mutually agreed price of the land in consideration. The process involves a further expenditure in terms of taxes, regulations and permissions. Along with this the amount that both the parties have to pay to the intermediaries is excruciating. These charges exponentially increase when land dealings are carried out internationally.
Smart contracts offered on a blockchain platform, as seen in the existing crypto transactions play an imperative role here.
They directly eliminate the cost of brokerage. Not only this, redesigns are being made in taxation policy prevalent in real estate. These will substantially cut down the amount of taxes and interests charged in land transactions when executed through a blockchain platform.
# Network Transparency and Data Accessibility
One of the key lessons from events like the 2016 Panama paper controversy and the 2008 Housing bubble recession, was the necessity to have a transparent system. In other words:
- A system where all the concerned parties know every single detail.
- A system where everyone can access required data.
- A system that can not be tampered with.
The demand for this system in real estate intensifies once we acquaint ourselves to the fact that annually a whopping $1.6 trillion is laundered through real estate.
Blockchain is the perfect solution here. In a decentralized ledger, all the transaction details are available to all the existing and new members. Members can access data and analyse the details, and Land centric documents such as government verification, taxes levied and agreement details remain present on this distributed ledger for future reviewing. Additionally, a buyer can protect himself from frauds by pre-requesting crucial documents such as ownership details and land details to be uploaded on the platform itself. The immutable nature of blockchain safeguards the data on the ledger from any malicious activity.
# Automated and More Efficient Process
The archaic methods of real estate involve a lot of paperwork. One of the notable ways through which brokers cheat buyers is by withholding important legal details. Real estate dealings conducted via the blockchain would require uploading of all the necessary documents on the distributed ledger. This converts all the paperwork as digital assets which are part of the smart contract and makes the process automated. Therefore the parties and organizations involved are protected from miscreant intermediaries. Also in this way the digitization ensures an efficient process of dealing.
# Real-time Payment Settlements
One of the major drawbacks existing in the real estate ecosystem is irregularities in the completion of payment procedures. It sometimes takes months for parties to physically settle the required amount. On the other hand, blockchain technology enables parties to sign contract documents and make agreed payments through the same distributed ledger. This real-time payment settlement gives an edge over the existing system.
# Fractional Ownership via Tokenisation
The traditional methods and valuation processes of land holdings require large capital investments to participate. Unsurprisingly, most global real estate is therefore the playground of a small percentage of wealthy people. In other words, the sector isn’t democratised. There isn’t a lot of open access, and the sector is in some dire need of, for lack of a better word, mass adoption.
In my previous post, I discussed how tokenisation can revolutionise the working of the real estate industry. A token is a digital representation of a tradeable asset present in the real world. The presence of tokenisation in real estate gives rise to fractional ownership. So instead of a single person owning a particular property, multiple parties can purchase a token for that property and own a share in it through a blockchain platform. The cost of maintenance and revenue generated is divided as per the share of percentage owned. Clearly, tokenisation empowers individuals to own shares in multiple properties instead of tying up their money in a single piece of land. Plus, the tokens can easily be liquidated. Such a model would bring much needed capital and spurt activity in the real estate sector.
While commenting on the effect of blockchain on real estate, Imbrex founder Stephen King said that “With blockchain we now have the ability to do it in a safe, accurate, and secure way. Once this happens, all else will fall in place.” He further adds that , “Blockchain’s impact will be an unparalleled paradigm shift for the real estate industry going forward.”
And I can not agree more with this statement. The union of blockchain and real estate will transform this previous slow paced ‘pen and paper’ industry to a quick heavily automated industry. With this the life changing advancements offered such as fractional ownership will help people realise their ambition of owning a land.
Along with this it is important to emphasise on the fact that blockchain is a technology which is still maturing. The daily upgrades in its working will guide the course of its functioning in the real estate industry. There will be unforeseeable challenges that will need to be tackled. But one thing can be safely commented. The way blockchain will influence the real estate industry will pave its way towards other industries in need of technological liberation.
Exciting times ahead!
Bringing Blockchain To Real Estate: All the Possibilities was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.