Blockchain for Real Estate: How This Disrupts the Market
Given how blockchain is massively disrupting the banking and financial sectors, it’s quite tough to find any industry, which is still left untouched by this technology. As a matter of fact, even real estate couldn’t escape the disruption. So, we will take a closer look at how and why blockchain for real estate can become the turning point of this sector.
In reality, commercial real estate holds a significant role in the overall world economy. According to MSCI, the global real estate market increased from $8.9 trillion in 2018 to $9.6 trillion in 2019. Although it seems like the industry is doing quite well, it actually consists of many frictions and liquidity issues.
The market is now too volatile to invest in and only available to the high class. Interestingly, multiple blockchain-based real estate companies emerged over the years, and now they intend to disrupt the way this industry works.
The threat is real, affecting the traditional ways of real estate, which will soon become obsolete. Therefore, the only way this industry can survive is through integrating blockchain into their business models.
That’s why, in this guide, I’ll follow through on how this technology is disrupting real estate and how blockchain for real estate initiatives is the best approach at the moment.
Blockchain For Real Estate: What Are the Biggest Problems of Real Estate?
Not Open to Everyone
Well, frankly, the real estate industry has always been an investment choice only for the rich only. However, previously middle class could attempt to use this as an option, but it’s way out of their reach. There aren’t many assets that can act as an alternative to real estate for the middle classes. But why is the situation so harsh now?
In reality, a lot of barriers are in place to prevent the majority of the population from getting access to real estate. For example, credit scores, international bank accounts, accreditation, citizenship, financing, access to the right sponsor, cash requirements, and fund managers are some of the major barriers.
Also, this industry deals with a lot of middlemen, which raises the difficulty level for the general population.
Lack of Transparency
The level of dishonesty and corruption plagues this sector heavily. As there is no concept of transparency within the business process, it deals with tax evasion, scams, money laundering, and so on.
Globally every year, $800 billion to $2 trillion dollars are laundered. And a significant portion of it is through real estate schemes. More so, the estimation of money laundering happening in real estate is around $1.6 trillion.
Obviously, it’s a massive issue that the government is having trouble dealing with. So, if the business model starts to incorporate transparency, it can fight back the corruption.
Very High Fees
This is mostly a concern for investors who are interested in investing in international real estate. But to do that, they have to pay a huge amount of fees in various stages. For example, there are broker fees, exchange fees, taxes, attorney fees, transfer fees, investment fees, and so on.
Also, as the number of middlemen in this sector is quite overwhelming, they all take their own cuts, raising your overall budget for the investment. More so, you also have to keep in mind that you will need to use accountants and consult lawyers to keep your tax records clean as well.
So, overall, it becomes a costly investment option.
Low Liquidity Levels
Well, I think everyone knows how difficult it is to liquidate real estate assets. It’s one of the major reasons why this sector really needs to change. Here, by liquidity, I mean how quickly you can convert your real estate asset to cash. Due to the high fees and high-value point of real estate assets, there aren’t many buyers around to help you sell your asset when you need it.
So, finding a buyer for it is a lot harder than other types of assets. The problems are the barriers to entry, low availability, too many regulations, lengthy processes, and so on.
All of these problems discourage potential buyers from investing in real estate.
High Pricing Commitments
This is yet another issue that prevents the middle class from ever consider real estate as a good option. In reality, this type of investment needs a lot of capital upfront. Not a lot of people can afford that. More so, only a handful of higher classes can show that much capital upfront.
In many cases, investors have to search for other expensive alternatives to reach pricing commitments. Also, as the market is volatile, it’s a considerable risk to bet this much money on an asset. Although you may have an excellent credit score in your own country, you can’t use that for international markets.
Slow Transaction Speed
The horror of buying real estate starts with the insanely slow transaction processes. Not only is this sector massively inefficient most of the time, but it also makes a lot of errors in the process as well. Also, finding the right property takes a lot of time too.
Apparently, it takes about 6 months on average to find a property and then another 6 months to go through all the procedures to acquire it. That is a massive amount of time to waste in investment schemes.
If you keep all of this in mind, you’ll see why this sector needs a disruptive force at the moment.
What Are the Benefits of Blockchain In Real Estate?
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There are some benefits to using blockchain in the real estate sector. Let’s check out what these are –
Increased Transparency
It’s no doubt that blockchain is perfectly capable of offering the transparency that the real estate sector needs so badly. As you already know, the real estate sector deals with a lot of corruption. But with the help of transparent systems, this can finally stop. If real estate companies start to use blockchain for their solutions, the customers can see just where the money is going.
Also, as the main database will remain public, no one can alter or even remove any transactions once it gets into the blockchain.
We believe this is the best solution at the moment.
No Data Silos
Data is all scattered around the real estate agencies. Therefore, you will never find any single source of point where you can get access to all the information necessary for your purchase. It’s even more essential for enterprise companies. If there is only a single database containing all the information from various stakeholders, then the efficiency of the company will increase greatly.
Blockchain can offer that. In reality, blockchain can offer tamper-proof shared logs that can compile every single information about a property. So, using blockchain in real estate can quickly solve a massive issue and increase the overall revenues as well.
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Efficient Transaction Processes
In reality, the transactions happening daily in real estate are through wire transfers and need a lot of time. More so, in many cases, the KYC verification or other documentation takes a lot of money. But with blockchain, transactions can happen within minutes.
Even in the worst-case scenario, it can complete a process within a day, whereas previously it took days to finish. So, the investors or customers will become more eager to invest and not shy away from it.
But you need to ensure that your blockchain solution can meet up with your company’s daily demand. If it can’t, then you’ll end up with a slow system.
Limited Intermediaries
The best benefit of using blockchain in real estate is the reduction of the overwhelming intermediaries. In reality, too many intermediaries give rise to complexity and added cost. Blockchain is effective in eliminating the middlemen from the equation. So, by going fully digital, you won’t have to deal with the unnecessary middleman cuts.
Also, any new listings on the platform will go through a thorough verification process. So, there is no scope for scams or fraudulent activities in the sector. Not only it’s more efficient for the investors but for the large real estate companies as well.
Want to know more about the benefits of blockchain technology? Why don’t you check out our guide on the benefits of blockchain technology?
Probable Use Cases of Blockchain In Real Estate
Increasing Liquidity
One of the best use cases of blockchain in this industry is the increased liquidity. In reality, using blockchain can create a platform where real estate companies can offer their services and properties for buying and selling.
More so, individuals investing in real estate assets can also list their properties for better reach. Public blockchain platforms can welcome anyone to list out their assets. However, they will have to go through an authentication process to check their background and eliminate any scams.
But having a platform for buying and selling properties will help connect potential buyers with sellers more efficiently.
Better Property Search Process
Searching for the perfect property is a real nuisance because there aren’t many platforms that offer legitimate options. Nowadays, people are more interested in searching online rather than go there in person. So, it’s only common sense to look for platforms that offer this feature.
But in most cases, these platforms offer minimal access to properties. More so, in many cases, they have expensive subscription fees. Also, another issue of this type of platform is the lack of updated content. In most cases, they don’t even update whether a property is already sold or not.
Therefore, using blockchain can help tremendously as brokers can directly control the data, and consumers won’t have to deal with third parties. That’s why blockchain for real estate can offer better property search options.
Full Transparency in Title Transfers
There are so many horror stories revolving around buying homes. From property history to foreclosures, there are too many scopes of making errors every step of the way. Due to all of this, a home purchase can come back and cause a lot of issues to the new homeowner. In reality, without full transparency in the title transfer process, many face even legal issues once they buy a new house.
This is where blockchain can really come in handy. Using smart contracts in real estate, they can streamline the process of the title transfer. Both the buyer and seller can see for themselves who is the property’s current owner, and future buyers can also view who owned the property over the years!
Automated Property Buy and Sell
Again, the process of buying and selling properties takes up a lot of time. During this time, the pricing can change, along with the fee of the brokers. With all of the issues, the sector is falling behind drastically. So, using smart contracts in real estate can ease the process of buying and selling properties.
In reality, blockchain technology can automate the whole process of buying a house. The consumers can go to a platform where potential sellers will display their assets. Once they pick one, they can go over to take a look physically or get a tour virtually. After that, all they have to do is set up the parameters and process the payment, and they are done.
All of this can take only a few days to finish.
Preventing Title and Deed Fraud
Another one of the blockchain real estate use cases is the prevention of deed and title frauds. You won’t believe how much issues deed fraud is causing over the last decade. In reality, this kind of fraudulent activity is increasing at a rapid rate, specifically in internet property sales.
More so, people can sell off their assets to another party without your knowledge, which is quite scary to start with. But as blockchain can store all of the property information and owner information, and legal documents on the ledger, there’s no way any third party can take control over your assets.
Fighting Wire and Email Fraud
Did you know that real estate-based wire and email scams are rising at 480% every single year? That is way too many victims with more significant losses every year. More so, this sector is quite an expensive option to start with, and then this type of crime makes people more reluctant to invest in it. In reality, criminals can pose as agents or companies to scam people into giving them money.
As there isn’t any proper security protocol in place, many agents even get their identities stolen and then get caught up in the criminal charges. But blockchain can reduce this number drastically. We don’t know whether it can fully get rid of the problem, but it can surely fight heavily against it.
Decentralizing Multiple Listing Services
Another one of the great blockchain real estate use cases is the use of decentralized MLS. Typically, in MLS, corporate brokers come together to form a database for properties. Here, they can share information with each other to make a potential sale. So, once a property gets sold, the commission is split between the brokers.
This is a ripe market, but without a proper networking base in place, criminals can hack into this system as well. More so, using blockchain in MLS can decentralize the process, making it impossible to manipulate.
Fractional Investing or Ownership
This is another creative take on blockchains use cases. Using blockchain technology, real estate companies can offer fractional investment options. Typically, it means that multiple owners can own a portion of a property that is not affordable individually. So, if the middle classes want to invest in a high pricing property, then they can share the ownership with others.
In reality, it’s an excellent solution for buying and selling real state assets because it can include more people than usual, increasing the overall liquidity options.
You can use smart contracts for real estate to facilitate the transactions and save time.
Token-based Ownership
This is one of the brilliant blockchain real estate use cases. In reality, it’s a different take on the whole real estate assets. For example, you can invest in a multitude of assets using tokens. So, here, the tokens will represent a value for the assets. So, it’s not like you will own a specific property rather than you will invest in the tokens that will represent a collective of said property.
Thus, it’s more similar to investing in gold, which has very little risk associated with it. In fact, there are already multiple projects in place for this type of application.
Preventing Mortgage Fraud
Mortgage fraud is one of the main concerns of real estate industries. In fact, the increase in property value is only increasing the percentage of this type of fraud. So, the industry will cont8nue to have losses that can go up to billions. Just in the USA, this fraud causes a loss of $2.5 billion every year! Can you imagine that?
But if you start to use blockchain for real estate, then you can prevent this type of fraud right from the start. As everything will get monitored online, no one can sneak through the system without detection.
Transparent Property Inspection
There’s a lot of problems regarding property inspection. In reality, property inspection causes more losses to the buyers than sellers. For example, many scams in real estate companies showcase a fake property to the buyer. In many cases, buyers only invest in the property not to use it but to sell it when the price rises. So, they may not even know that the property they invested in doesn’t even exist.
But once you convert to blockchain for real estate, you can get transparency in a property inspection. Theirs is no way to cheat the system here, and you will see the right property that you will invest in. More so, you can also see past history any issues in the property just from the platform.
Cutting Real Estate Costs
This is by far the best use cases of blockchain. Once companies start to incorporate blockchain into their networking system, they can make the whole process automated and then cut down the cost drastically. More so, it will not stay limited to only the organizational level, but it will also help the consumers as well.
When blockchain takes the place of the middlemen, you won’t have to pay extra fees to buy the properties. The drastic change in the intermediary model will ensure lower cuts, and it will also save a lot of time.
How Organisations Are Using Blockchain For Real Estate
Lantmäteriet
Lantmäteriet is a Swedish government real estate agency that’s working with blockchain technology. At present, it’s working on a new solution that will facilitate their land registry process. More so, it will also get rid of any discrepancies and make the process more seamless.
Brookfield Asset Management
Well, Brookfield Asset Management is one of the biggest real estate enterprise companies in the world at the moment. At present, they have taken a keen interest in blockchain, and they plan to work on a solution to integrate it into their internal networking system. They believe they can reduce their costs drastically using blockchain for commercial real estate.
Link REIT, Hongkong
Link REIT in Hongkong is working with Allinfra for a blockchain project in real estate. However, this is more of a pilot project where they are checking how blockchain is working at the moment for this sector.
JLL
JLL is also working on blockchain real estate projects. Using the technology, they are going for Spanish commercial real estate valuation. More so, they believe that they can use it to construct and finance projects as well.
Westfields
Another one of the good examples of blockchain real estate projects is Westfield’s solution. They are working on a solution that is focused on offering real estate bank guarantees. Also, it will mainly introduce leaseholders in the retail sector.
Coldwell Banker
Coldwell Banker is one of the real estate giants that is working on blockchain-based solutions. In reality, they are using blockchain for listing out agents, sellers and offering transaction processes. Also, they want to streamline their transactions and contracts from a single platform.
National Agency of Public Registry
National Agency of Public Registry of Georgia is one of the examples of using blockchain for commercial real estate applications. In reality, Georgia is working on a solution that will enhance their real estate transparency and cut costs and increase efficiency.
Prologis
Prologis is working on a solution-focused on logistics real estate. This is yet another great addition to the blockchain real estate projects list. At present, they have joined forces with Blockchain in Transport Alliance (BiTA) to develop royalty-free data standards for the logistics companies.
Mata Capital
Mata Capital is a French real estate fund management company. They are currently working on blockchain solutions that will focus on optimizing and modernizing the process of maintaining and distributing funds of their investor registry.
Dubai Land Department
Dubai Land Department is working on blockchain for commercial real estate options. In reality, they are working on a solution that will focus on recording all of their local real estate contracts on the ledger. More so, they plan to secure all related government documents on it as well.
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Conclusion
Blockchain for real estate is a field that needs more exposure in the world. This sector is full of corruption and criminal activities. However, the importance of this sector is all-time high now. So, without proper guidelines in place, there is no way this sector can bloom effectively and get rid of the corruption for good.
It needs a change, and blockchain is definitely up to the task. Therefore, it’s only a matter of time when real estate companies will see blockchain’s worth and start mass integrating the tech.
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!
An engineer, a gadget-freak, and a perfection fanatic – the ideal combination of a tech-nerd! This Enterprise Blockchain Analyst seems to have an unfathomable interest in blockchains, which makes him perfect for sharing his new discoveries on 101 Blockchains.
