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Blockchain in Real Estate Industry: A Game Changer
- Hrithik Saini
- Feb 16, 2022
Provided the technology's upheaval of financial services and consequent extensive use across sectors, it's difficult to identify a sector that hasn't been touched by blockchain. Bitcoin and other cryptocurrencies have had a significant influence on payments, remittances, and foreign currency.
Initial coin offerings (ICOs) have put stock investment, startup financing, and venture capital on the defensive. Blockchain has even disrupted the food supply chain business.
Real estate is not immune to blockchain upheaval. Previously, only trading high-value ownership of real estate through digital platforms was not the norm. Real estate transactions are frequently handled offline, including face-to-face interactions with a variety of parties.
Blockchain, on the other hand, has made it possible to modify this. With the inclusion of smart contracts in blockchain systems, assets such as real estate may now be quantized and exchanged in the same way that cryptocurrencies such as bitcoin and ether can. This method of purchasing real estate differs.
Also Read | Advantages of Blockchain in Real Estate
Blockchain in Real Estate Industry
Here are eight ways in which blockchain has altered the real estate landscape.
Blockchain in real estate industry
In reality, commercial real estate plays an important part in the international economy. Although it appears that the sector is functioning well, it is riddled with frictions and liquidity concerns.
The market is currently too unpredictable to invest in, and it is only accessible to the wealthy. Interestingly, several blockchain-based real estate startups have formed over the years, intending to disrupt the way this sector operates.
The threat is genuine, and it will eventually render traditional real estate methods obsolete. As a result, the only option for this sector to thrive is to include blockchain into its business strategies.
The method of purchasing real estate differs. Here are eight ways that blockchain has proved to be a game-changer in the real estate industry.
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Fractional Ownership
Blockchain eliminates the obstacles to real estate investing by permitting limited partnership. Typically, investors would require a large sum of money upfront as well in order to buy assets. Alternatively, investors may pool their resources to purchase larger-ticket houses.
Investors would only need to open a trading software to purchase and sell even fractions of tokens however they see fit using blockchain. Furthermore, fractional ownership would allow them to avoid the hassles of property management, such as maintaining and leasing.
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Decentralization
As a decentralised system, blockchain demands confidence and confidentiality. All peers in the network have exposure to the information recorded on the blockchain, making data visible and unchangeable.
It just takes a look back to the 2008 housing bubble crisis to realise how greed and a lack of openness on the side of institutions may have disastrous effects. Trust is embedded into the mechanism of a decentralised exchange. Buyers and sellers might have more trust in executing transactions since information can be verified by peers.
Fraud attempts would be reduced as well. Smart contracts are progressively becoming acceptable records, with Vermont and Arizona enacting legislation to that effect. As a result, blockchain networks would have more applicability outside of the technology itself.
Also Read | Blockchain in Financial Service
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Marketplace and platforms
Traditionally, the real estate platform has been focused on marketing and interacting with sellers and buyers. However, blockchain presents new ways to exchange real estate and therefore can empower marketplaces and online markets to thoroughly support real estate transactions.
By tokenizing real estate, assets may be exchanged on exchanges in the same way that stocks are, and transactions can be completed online.
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No more intermediaries
Brokers, attorneys, and banks have recently been associated with the real estate industry. According to a Deloitte 2021 report, blockchain may soon change its responsibilities and involvement in real estate transactions.
Profiles, payments, and legal paperwork are some of the roles that new platforms may potentially take over. By eliminating the intermediaries, buyers and sellers will get more out of their investment since they would save on commissions and fees levied by these intermediaries.
This also speeds up the process by eliminating the back-and-forth between these intermediaries.
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Liquidity
Real estate has traditionally been seen as an illiquid asset compared to the limited time it requires for transactions to be completed. This is not the case with cryptocurrencies and tokens, which may theoretically be swapped for fiat currency on marketplaces.
Real estate, on the other hand, maybe easily traded as a token. A proprietor does not have to wait for a purchaser who can purchase the entire property to extract some value from their investment.
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Costs
The transparency provided by a decentralised network can also help to reduce the costs involved in real estate transaction data. Aside from the savings realised by eliminating intermediaries' specialist fees and commissions, there are additional expenditures involved with real estates such as inspections, service charges, financing fees, and taxes.
These prices differ considerably depending on the jurisdictional region. These, like middlemen, can be decreased or even eliminated from the scenario as technologies automate and integrate these operations.
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Email Frauds and Fighting Wires
Did you know that real estate-related wire and email frauds are increasing at a rate of 480 per cent every year? That is far too many victims, with considerable losses increasing year after year.
Furthermore, this industry is a costly alternative, to begin with, and this sort of criminality makes individuals even more hesitant to invest in it. In reality, thieves might masquerade as agents or businesses to dupe individuals into sending them money.
Because there is no effective security process in place, many agents have their identities stolen and become embroiled in criminal proceedings. However, blockchain technology has the potential to dramatically cut this figure. We don't know if it will eliminate the problem, but it will certainly battle hard against it.
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Token-based ownership
This is one of the most inventive blockchain real estate applications. In actuality, it is a new perspective on the entire real estate assets. Tokens, for example, may be used to invest in a wide range of assets.
So, in this case, the tokens will reflect a monetary value for the assets. So, rather than owning a single property, you will invest in tokens that symbolize a collection of said property.
Also Read | Technologies Transforming Real Estate Industry
Impact of Blockchain on different Real Estate Areas
Let’s take a look at how Blockchain influences different real estate areas like conventional real estate financing, property management, and loan and mortgage securitization.
How does blockchain affect conventional real estate financing?
It is tough to raise funds for new real estate developments. When partnering with financial institutions as single source loan providers, property development enterprises risk interest rates as high as 29 per cent. They also encounter difficulties with different finance sources since crowdfunding can be tough to manage.
Blockchain facilitates access to alternative finance options for developers while also providing investment confidentiality and constant ROI tracking for investors.
Financial goods based on blockchain technology may also be built for worldwide distribution. These involve simple investment engagement, boost investor confidence, and provide access to a larger pool of investors.
What influence does blockchain have on property management?
Large-scale property management organisations face inefficient worldwide portfolio supervision. Blockchain enables safe data exchange, automates rental payments and reimbursements to landowners, and delivers quality due diligence throughout the portfolio.
This improves operational efficiency and enables time and cost savings. It also creates far more data, allowing for improved decision making.
What influence does blockchain have on loan and mortgage securitization?
Blockchain technology provides financial organisations with a single source of verifiable sources, secure information sharing, unchangeable transaction monitoring, and real-time transaction settlements.
By digitising a loan or mortgage, important data such as rights of ownership and loan monthly payments may be encoded to help future servicing choices. Smart contracts can be used to collect and transmit payments to benefitting holders while also providing real-time data to authorities.
This results in effective lifecycle management and builds trust in secondary markets by giving investors proof of asset performance.
Also Read | Smart Real Estate
Advantages of Blockchain in the Real Estate Industry
Today's real estate market comprises of several siloed and autonomous networks, with commercial friction and opacity across current systems. The Ethereum blockchain provides a viable approach for achieving the following industry advantages:
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Real estate asset tokenization
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Effectiveness of workflow for underlying industrial activities
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Cost savings as a result of process automation
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Global asset distribution is now available.
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Access to larger investor pools as a result of ownership fractionalization
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Access to opportunities in the secondary market
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Access to data to improve transparency and educate better investment decisions and portfolio management
Commercial purchasers will continue to rely on the guidance, knowledge, and understanding of real estate brokers in the property market. The processing of securities, liability management, document preparation, and accounting, on the other hand, will surely alter.
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