Real estate is the largest asset class in the world. Commercial enterprises and real estate professionals are recognizing the transformative impact of blockchain technology to optimize retail and commercial property sales, streamline payments, and increase access to real estate funds and investment opportunities.
Today’s real estate industry is crammed with multiple stakeholders, unclear land titles, fragmented properties, a very opaque system, frauds, and corruption. Hence, for the unique peculiarities that blockchain offers, it becomes more than relevant to build a blockchain empowered real estate and land management platform.
The real estate sector has a huge contribution to the economic growth of a country. The more robust a country’s land management system is, the more it impacts the GDP of a nation.
In the case of India, for example, the real estate industry amounts to 7-8% of India’s GDP. This figure is set to increase to 13% by 2025. Additionally, India’s real estate industry is set to reach the US $1 trillion by 2025. By analyzing this bundle of information reveals the huge impact; the real estate sector has on a country’s GDP. This holds true for any country/region.
Therefore, it becomes necessary to have a system that is efficient, cost-effective, timely, transparent and secured. However, currently, the land management and real estate industry of any country seems to be majorly lacking.
We can say that blockchain technology could have a major effect on the real estate industry, from property purchasing to due diligence to title management. We identify the early adopters and potential impact of how blockchain technology can disrupt Real Estate.
Benefits of Blockchain in Real Estate
- Automation and more efficient processes
- Reduced costs
- Network transparency and data accessibility
- Real-time payment settlements
Why Blockchain could Benefit the Real Estate Industry?
Blockchain technology offers a form of shared record-keeping which is designed to be difficult to tamper with. It operates through decentralized peer-to-peer platforms, building resilience against the spread of corrupted information and boosting resistance to fraud.
In fact, blockchain technology has the potential to address many challenges within the real estate industry, including:
- Improving trust and transparency: Blockchain technology offers a verifiable and censorship-resistant option for sharing information (such as valuation details).
- Reducing siloed databases: Real estate processes would benefit from secure and tamper-resistant shared databases that compile data and documents from various different stakeholders in one place.
- Making transaction processes more efficient: Most real estate transactions are still conducted through wire transfers and require costly verification processes that can take days to complete. Blockchain-based transactions could enable a streamlined process that delivers quickly and reduces costs.
- Limiting the use of intermediaries: Many intermediaries, from brokers to escrow companies, could be rendered obsolete by blockchain-based approaches, as records could be stored, verified, and transferred by using blockchain technology. Removing the need for intermediaries could dramatically reduce costs and save time.
List of Blockchain Use Cases in Real Estate
- Title transfer transparency
- Smart contracts
- Preventing deed and title fraud
- Preventing E-mail and wire fraud
- Decentralizing Multiple Listing Services (MLS)
- Crowdfunded investing
- Tokenized ownership
- Decentralizing Airbnb
- Fighting mortgage fraud
- Property inspection transparency
- Land titles and deed records
- Asset management and Real Estate funds
- Property sale and title assignment
- Investor and tenant identity
- Payments and leasing
- Real-time accounting
Real Estate Investing
Real estate investing has historically only been available to those able to put down large sums of capital, especially in regard to commercial property and multifamily housing. Additionally, real estate investing often involves expensive intermediaries such as fund managers, further raising the barrier to entry.
However, blockchain technology is looking to disrupt real estate investing by providing a way to decentralize the process through crowdsourcing and tokenization.
Tokenizing real estate assets refers to a process in which a property owner can offer digital tokens that represent a share of their property. Using a blockchain to track these investments, with each transaction being time-stamped and immutable, makes it possible to limit the risk of fraud.
This approach makes it easier to establish a market for property “micro-shares,” creating the potential for a property to effectively have numerous co-owners with a stake in potential returns.
There are many blockchain-based real estate investment platforms that currently exist, though most are still in the development phase.
While blockchain technology could help solve many problems within the real estate industry, there are always challenges that come along with transitioning to an emerging technology that has not yet fully matured.
It is important to note that blockchain technology is still in its early stages, and full adoption across the real estate industry comes with its own set of challenges:
- Regulation: Navigating complex regional regulations around the globe is a key issue that faces the adoption of any new technology, blockchain-based platforms included. For example, some blockchain-based real estate investment platforms do not allow investors from the United States to participate because the relevant regulations tend to be strict and cause additional administrative overhead for the sale and trade of tokens. Therefore, it is easier for these platforms to simply prohibit Americans from participating, even with the loss of a huge market of potential investors.
- Scaling: In the real estate industry, there are millions, if not billions, of global transactions made every year. This requires networks that can handle large transaction volumes quickly and efficiently. However, Ethereum can only currently handle about 15 transactions per second, and Bitcoin only around 5 transactions. In comparison, Visa claims that it can process over 24,000 transactions every second. A transaction bottleneck would pose a major issue for large-scale real estate enterprises that require ultra-fast processing times.
- Interoperability: Many different blockchains exist, and most of them are unable to communicate or work with one another. This lack of standardization, or interoperability, is a challenge in the blockchain sphere as a whole. A rental company, for example, may wish to use the public Ethereum blockchain to execute lease contracts but would prefer to keep tenant data and rent rolls on a private blockchain. Or an enterprise may begin using one blockchain solution, and later find a better solution for their needs and decide to migrate. To keep the past transaction histories protected, the second blockchain would need a way to reference the first blockchain — and this is currently not possible due to lack of interoperability.
- Widespread adoption: As blockchain is still an emerging technology, most people still don’t fully understand what it is, how it works, and what its uses are. Widespread adoption of blockchain technology is still some way off, especially as many industries have yet to fully explore its potential applicability. In the real estate industry, it could be a while before a majority of businesses feel confident enough in blockchain technology’s capabilities to adopt it for day-to-day operations.
Real Estate Companies that Uses Blockchain Technology
- Midasium, self-proclaimed as ‘The Blockchain of Real Estate,’ offered to secure property transactions.
- Bloqhouse, a blockchain platform, puts property investments on the blockchain.
- Lantmateriet, the land ownership authority of Sweden, paired with blockchain startup ChromaWay, to develop the first blockchain-based property transaction.
- The Republic of Georgia became the first national government to use blockchain technology to conduct land title registrations.
- Ubitquity, an American startup, has partnered with Brazil’s Real Estate Registry Office to increase the security of real estate ownership in the country.
- Rentberry uses a decentralized ledger to make finding and renting an apartment easier.
- ATLANT has developed their own self-named platform for the tokenization of real estate.
- Imbrex provides a search engine that can be used by both real estate agents and future home buyers.
- Propy, a real estate search engine, which connects real estate agents and buyers, by effect streamlining the purchase of new homes.
- Indiegogo is crowdfunding turned blockchain business that allows people to raise capital to build new buildings for business, as well as crowdfunding for a slew of other projects.
- iHouse is a global real estate cloud platform, which sets revolutionize real estate.
There is a long road ahead before blockchain technology reaches maturity. Companies are still experimenting with their applications, and many issues remain to be addressed as the general public continues to learn how to use and understand decentralized technology. Moreover, blockchain technology must overcome the somewhat negative image it has gained from speculative cryptocurrency bubbles, with some projects amounting to thinly-veiled get-rich-quick schemes or even outright fraud.
Thus, it is clear that this emerging technology has the potential to disrupt many industries, including real estate.