Real estate

How Blockchain is Revolutionizing the Real Estate Sector

By 03.05.2021 0 Comments

Research Questions

  1. What is blockchain technology?

  2. Why is blockchain needed in the real estate sector?

  3. What are the global trends in blockchain use for real estate?

Introduction

It is hard to find a sector that has not been impacted by technology in some way. Blockchain technology is a secure and reliable way of recording transactions over a network of connected systems. It has already disrupted the financial services sector and made a strong impact on payment modes, remittances, and foreign exchange. Globally, real estate has not escaped the revolution, but rather, the transaction of high-value assets through digital channels has the potential to transform the realty landscape. The introduction of new concepts like smart contracts has led to the trade of real estate assets as tokenized cryptocurrencies. Although the true potential of blockchain technology can be utilized in many innovative ways, problems of the real estate sector such as incomplete information, delays in possession, lack of transparency, and frauds can be mitigated by the use of blockchain technologies.

Understanding Blockchain

Blockchain technology has now been around for more than a decade, however, the benefits of moving around assets digitally are still unfamiliar to real estate professionals. In its simplest form, blockchain is like a huge database that holds information about transacting parties and the transactions made. It is decentralized, which means that no central authority is responsible for its regulation. As the data is not managed by any single entity, there are also less chances of corruption or data manipulation. It is also a secure ledger system which “chains” together chronological data. The real value of the entire system lies in the fact that no third-party system, such as a bank, is required to authenticate transactions. Speed and transparency are other key features which make blockchain an essential tool for the real estate market. There are multiple established blockchain enterprises around the world, and it does not take much resource to start another. This means that each country can integrate its real estate system into blockchain technologies (JLL, 2018).

Blockchain and Real Estate

The use of blockchain in real estate will have the biggest impact on transactions and agreements. Normally, real estate deals have a lot of third parties involved, such as brokers and agents. There are also many hidden fees besides the asset’s cost, such as lender charges, closing costs, appraisals, inspections, and legal fee. Blockchain can significantly remove these third-party costs and reduce unforeseen expenses. Moreover, as traditional agreements and deals require much time to reach maturity, blockchain also adds speed to real estate transactions. A blockchain deal is completed via a smart contract that builds in the functions of a broker, lawyer, and arbiter. Each phase in the transaction is a new block added to the previous to form a new chain in the system.

Another interesting use of blockchain is the fractionalization of equity into smaller pieces that can be bought or traded individually. The process is called tokenization of an asset. As small investors cannot think of investing in the commercial real estate market, tokenization can provide access to such investors at much more bearable costs. The problem of liquidity can also be solved using the same model.  Usually, if money is urgently needed, investors have to sell their valuable assets at meagre prices to accommodate for their urgency. By introduction of tokenization, they can easily split their asset to maintain ownership over a significant percentage by selling a small portion of their asset. Four criteria must always be present in a real estate blockchain management system. Security, flexibility, scalability, and cost are what differentiate blockchain models from traditional real estate (Gagiuc, 2020).

Global Real Estate and Blockchain

Blockchain has already been implemented in real estate throughout the world. In fact, blockchain-related real estate businesses are growing in popularity as they increase trust and transparency. As the real estate business involves large investments, trust is of key importance. PropertyClub is a New York based real estate platform that refines how people buy, sell, or invest in real estate. Managego is another New York based company that leverages blockchain for rental property. The software uses the ledger system to help property managers and owners process payments and also provide more transparent transaction history. SmartRealty, a company based in Seattle, use blockchain to maintain real estate contracts. Reasi is another company based in Santa Monica that uses end-to-end seamless escrow accounts for real estate. They manage it based on blockchain technology. Therefore, it can be seen that blockchain does not only have proof of concept; it has already brought innovation to the doorstep of real estate investors, sellers, and government bodies (Daley, 2020).

Conclusion

Industries all around the world are changing due to the fourth industrial revolution. The change is being brought about by technologies that make business safer, easier, and transparent than ever. Blockchain is one such technology which has revolutionized the real estate sector. With the introduction of smart contracts and fractionalization of property, blockchain has helped bring innovation in the buying, selling, renting, and investing of real estate. There are many companies that are working on the model in real life today. This makes blockchain an interesting path for discovery in the future of real estate.

Key Takeaways

  1. Blockchain is a secure and reliable way of recording transactions over a network of connected systems.

  2. The introduction of new concepts like smart contracts has led to the trade of real estate assets as tokenized cryptocurrencies.

  3. Blockchain is a decentralized and secure ledger system that reduces chances of fraud and data manipulation.

  4. Blockchain technology can remove all hidden and extra costs associated with a real estate purchase or investment.

  5. Another interesting use of blockchain is the fractionalization of equity into smaller pieces that can be bought or traded individually.

Bibliography

Daley, S. (2020). 17 BLOCKCHAIN COMPANIES BOOSTING THE REAL ESTATE INDUSTRY. Retrieved from https://builtin.com/blockchain/blockchain-real-estate-companies

Gagiuc, A. (2020). Blockchain in Real Estate: What’s Next in Tech Innovation? Retrieved from https://www.cpexecutive.com/post/blockchain-in-real-estate-whats-next-in-tech-innovation/

JLL. (2018). How Blockchain is reshaping the real estate industry. Retrieved from https://www.jll.cl/es/trends-and-insights/investor/how-blockchain-is-reshaping-the-real-estate-industry

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